Californians struggling to find homeowners insurance got even more bad news when the American National Group recently announced it will no longer write policies in California, a move that will leave nearly 38,000 homeowners without coverage. In a sign that the insurance crisis gripping California and Florida has spread, American National also announced plans to cancel homeowners’ policies in eight other states.
American National’s spokesperson announced the decision and explained some of the reasons behind it, saying, “This action is driven by significant and ongoing profitability issues in the homeowners insurance market.”
In particular, the statement cited the following issues to explain why it is no longer feasible to write policies for homeowners in California and affected states:
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Inflationary pressures drive up costs
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Increasing the claim frequency
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Competitive market conditions
Just a few hundred claims in California can wreak havoc
The harsh reality is that the cost of covering claims simply exceeds American National’s ability to raise premiums and still be profitable for its shareholders. This is despite the fact that the Golden State has collected an estimated $37.9 million in annual premiums. That may sound like a lot of money, but when you spread it across 37,000 policies, it’s not hard to see where the combination of wildfires, mudslides and flooding in California could wipe out the company.
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Take the Los Angeles market, where the average home price has hovered around $1 million in recent years. A year’s worth of wildfires, floods and mudslides that have wiped out just 100 homes in the Los Angeles area could mean $100 million in damages for American National. Since $1 million is just the average home price, it’s likely the final figure could be much higher.
That’s just Los Angeles. If another 100 American National policyholders in San Francisco and San Diego filed total loss claims on their homes, American National’s exposure would be in the hundreds of millions. Add that to American National’s daily costs of doing business and the company could be devastated by just a few hundred claims in one state.
For insurers, the risk is greater than the profit
At its core, the insurance industry is based on risk management, and American National has decided that the risk of writing homeowners policies cannot be managed. The pullback may make financial sense for American National, but it’s just the latest dark twist in what is becoming a nightmare for California homeowners. Every time an insurer leaves the state, the remaining insurers face less competition.
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Before American National’s withdrawal, State Farm Insurance, Allstate Corp. and Farmers Insurance Group all announced they would leave California or impose new restrictions on homeowners’ policies. That translates into higher premiums and higher deductibles for the homeowners who can get a policy. Designed as an insurer of last resort, the California-administered FAIR Plan receives thousands of new applications per day.
Is the insurance crisis coming to your country soon?
The insurance crisis began in Florida, where residents pay the highest national average premiums due to the frequency and intensity of hurricanes that have hit the state over the past decade. The crisis then spread to California, but American National’s decision to halt coverage in eight other states is a clear sign that the crisis is spreading and could come to your state.
The other eight states that American National has left are Arkansas, Louisiana, Colorado, Minnesota, South Dakota, Washington, Oklahoma and South Carolina.
Real estate investors will need to keep a close eye on this trend. With interest rates and insurance premiums rising as quickly as they are today, many deals that may have seemed impossible to miss a few years ago may no longer be as attractive. Beyond that, regular homeowners and potential buyers alike may want to brace themselves for sticker shock the next time they go shopping for a policy.
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This article Another Home Insurer Leaves California and Eight Other States originally appeared on Benzinga.com
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