Announced just a few days ago, State Farm, ranked the number one property and casualty insurance agency by the National Association of Insurance Commissioners (NAIC) (Lowery, 2023), announced that it will no longer offer homeowners policies to California residents. This decision, which will have more aftershocks than the earthquakes that also plague the area, was made in their own words:

“State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market” (Singh, 2023, para. 2)

According to an independent reporting agency, State Farm wrote “nearly $46.7 billion in premiums and earned just over $44.8 billion.” (Lowery, 2023) Overall, the insurance industry earned nearly $836.9 billion in 2022. State Farm, Nationally ranked as the number-one property and casualty insurance agency, currently holds 16.84% of that share.

Translated, this means that despite its overwhelming market share, State Farm is willing to walk away from the percentage that includes California. Included with the decision are not only personal homeowner policies but also includes all business policies.  Car insurance policies are not affected. (Singh, 2023)

The decision was made after 2021 when California experienced a significant wildfire increase. According to the California Department of Forestry and Fire Protection, 7,400 wildfires burned 362,455 acres that caused losses totaling $4 billion in property damages. With premiums covering $7 billion, statisticians advised State Farm to withdraw their services. This was a move that could not have been taken lightly.

State Farm is also not the first insurance company to withdraw renewal options for its client base. American International Group (AIG) decided in 2021 not to renew thousands of policies in California, citing the same evidence that State Farm is now reporting. (Singh, 2023)

What this means for residents in California is an inevitable rate hike despite the California Department of Insurance (CDI) promising that “While insurance companies prioritize their short-term financial goals, the long-term goal of the Department of Insurance is protecting consumers. The factors driving State Farm’s decision are beyond our control, including climate change, reinsurance costs affecting the entire insurance industry, and global inflation.” (Singh, 2023) Residents in California need to know that there is a real possibility of either not having property insurance options or the options become too cost prohibitive to secure. 

As any homeowner knows, one cannot secure a loan to purchase property without property insurance coverage. A cash buyer will also not be particularly interested in buying a home if they know their investment might go up in smoke.

We have also seen smoky skies in our backyards, so what does this mean for the Washington real estate market regarding securing property insurance?

According to the Washington State Department of Natural Resources, in 2022, four significant wildfires burned 30,800 acres. Compared with 2021, with over 800 fires burning 484,045 acres and destroying nine homes, 2022 saw a substantial decrease in at least acreage destroyed. While the loss of homes in 2022 was one more than in 2021, the total number of acreage destroyed was much less. (Washington State Department of Natural Resources, 2022)

Sadly, in 2022 California wildfires killed nine people, destroyed 772 structures, and damaged another 104. (CART, 2022) Highly concerning is that 2022 was considered “a good year” compared to 2020 when 4.3 million acres were destroyed and 33 lives were lost. Losing nine lives seems much better, but horrific all the same. (Kerlin, 2020)

What does this latest twist in the ongoing exodus from California mean for Washington State residents, specifically Whatcom County? People in Washington, particularly Western Washington, should see continuing increases in property values as people exit California in search of a new life away from the peril of wildfire, rising insurance rates, and state taxes that need to be levied to cover the catastrophic losses that California experiences every year. 

We can also remember to be thankful that we do not live in a place with such losses and to welcome those who have. 

References

CART, J. (2022, December 1). Cal Matters. Retrieved from By the numbers: California’s mild 2022 wildfire season: https://calmatters.org/environment/2022/12/california-wildfires-2022/

Kerlin, K. (2020). California’s 2020 Wildfire Season: Report Summarizes Record-Breaking Fire Year and Calls for Shift in Strategy. Davis: UC Davis. Retrieved from California’s 2020 Wildfire Season:

Lowery, L. (2023). State Farm holds No. 1 slot in NAIC’s 2022 top 25 P&C list. Repairer Driven News. Retrieved from State Farm holds No. 1 slot in NAIC’s 2022 top 25 P&C list.

Singh, S. (2023, May 27). CBS News. Retrieved from State Farm to stop offering new home insurance policies in California due to “growing catastrophe exposure”: https://www.cbsnews.com/news/state-farm-stop-offering-new-home-insurance-policies-california-wildfires/

Washington State Department of Natural Resources. (2022). Wildfire Season 2022. Washington State Department of Natural Resources. Retrieved from https://www.dnr.wa.gov/publications/rp_fire_electric_utility_annual_fire_season_report2022.pdf