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Homeowners Insurance Market Stretched Even Thinner as 2 More Companies Leave California

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In an aerial view, a mudslide has damaged homes after a series of storms passed through on Feb. 28, 2023, in La Cañada, Los Angeles County. (David McNew/Getty Images)

Two additional insurance companies are pulling out of California. Tokio Marine America Insurance Co. and Trans Pacific Insurance Co., will not renew their customers’ home insurance policies, the California Department of Insurance confirmed to KQED in an email. The companies will begin mailing customers nonrenewal notices this summer.

Compared with some high-profile departures, these companies are relatively small, together insuring around 12,000 homeowners. “Given the companies’ minimal market share, we do not expect this to affect the California market as consumers have other options,” Jazmín Ortega, deputy press secretary for the state’s insurance department, wrote to KQED.

However, their departure could worsen the insurance availability crisis at a time when more than 90% of companies within the admitted California insurance market are either not offering new property insurance or have heavy restrictions. Even among the companies listed in the California Department of Insurance’s Home Insurance Finder tool, the majority — about 70% — are not currently offering new plans, according to data gathered by the Susman Insurance Agency and shared with KQED.

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The companies did not specify their reasons for withdrawal in filings made with the state’s Department of Insurance as opposed to some, like State Farm and Allstate, which have explicitly cited wildfire risk. Both are subsidiaries of Tokio Marine Holdings, Inc., a Japanese company and plan to get out of both the homeowners and personal umbrella insurance markets. The fact that they’re not renewing personal liability insurance may also indicate their interest in leaving California entirely, as opposed to rebalancing their risk exposure before wading back into the market.

“This is bad timing,” broker and insurance expert Karl Susman said. “Because there’s no place for [customers] to go other than the FAIR Plan that is already bloated and overexposed based on what they’re designed for and what they’re financed for.”

The FAIR Plan is California’s insurer of last resort, where customers can buy a policy when no other company will offer coverage. It’s expensive insurance and the policies are generally pretty lousy. Its ranks have also swelled enormously in the last few years.

“The FAIR Plan is getting a thousand applications per 24 hours, which is outrageous to even conceive of,” Susman said.

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The FAIR Plan has more than $300 billion of assets they’re insuring, about three times more than it did four years ago. It has a tiny fraction of that saved in the bank, so in the event of a large-scale disaster, it could become insolvent, which would have catastrophic ripple effects.

The timing of the latest insurance company departure is also bad and confusing to some observers because the state is amid a large overhaul of insurance regulations projected to ease conditions for insurance companies. The state’s insurance department is leading the effort and dubbed it the Sustainable Insurance Strategy. The proposed changes, many of which are desired by the insurance industry, are halfway rolled out, with more being announced soon and will go into effect at the end of the year. The next hearing, on April 23, will consider catastrophe modeling.

“We literally are at the tail end of all of this [instability] before the carriers have the ability to underwrite, price, discount, and do all of those things and are able to come back and start competing again,” Susman said.

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