Insurance remains an industry in flux in California, and it’s unclear whether any one company will be motivated to fill in the gaps on a large scale.
Take Farmers Insurance, the Woodland Hills-based mainstay that in August announced an 11% staff reduction to “better position itself for a future of long-term profitability and growth.”
In November, it announced that one of its subsidiaries – Farmers Direct Property and Casualty Insurance Co. – was no longer writing new policies or renewing policies, although it continues to offer policies and renewals here under separate subsidiaries. As previously reported by personal finance website Kiplinger, those subsidiaries – including Bristol West Insurance Group, 21st Century Insurance and Foremost Insurance – represented 98% of Farmers’ customers in California.
Meanwhile, the industry is facing even more challenges. Crestbrook Insurance Co., a subsidiary of National Mutual Insurance Co., this year became the latest insurer to stop renewing or adding homeowners’ policies in California. Other national carriers, including State Farm Insurance, threw in that towel last year. And unlike in other industries, it is antithetical for competitors to scoop up a competitor’s clients wholesale because the idea of insurance is not putting your eggs – customers – all in one basket, for an earthquake or fire to topple.
“It is really, really tough. I just went through it myself, looking for insurance,” says Sean Andrade, an insurance litigation attorney and managing partner of downtown law firm Andrade Gonzalez LLP. “We have clients, too, who have trouble getting insurance. Whatever insurance is left is not that great and pretty expensive.”
Representatives with Farmers Insurance did not respond to multiple interview requests.
The most obvious problem – one telegraphed by many of the carriers who have curbed their operations here – is that natural disasters are becoming too expensive for them. Wildfires have devastated much of the state in the past decade; earthquakes are an ever-present threat; and the wet winters of the past two years have now made flooding and mudslides a bigger threat.
Trial outcomes are also making an impact on carrier behavior, Andrade says, thanks to the eye-popping payouts from personal injury, construction defect and other claims affecting insurance.
Still, the trend will have to change, eventually.
“No matter what, I think there’s still a pretty big incentive to get into the California market because we are so big,” Andrade concedes. “We get so many people and businesses, and I think there is a draw because the business can be very profitable.”
We’re already seeing some movement in that direction. After exiting the state altogether last year, Allstate Insurance this year began offering auto insurance in California again – but at a 30% markup from its previous rates. Restaurant insurer Rainbow Insurance also entered the California market this year.
And while prices are high at the moment, market forces can ultimately fix that for customers in the future.
“Having those new insurers come in will immediately impact the pricing,” Andrade says. – ZANE HILL