Home insurance companies have already exited the markets along the East Coast as the risk of hurricanes increases. But State Farm’s exit from California last month over wildfire risks caused an uproar.
“Now that they’ve pulled out, that’s going to be a real problem, especially in those very hot markets where you’re paying a premium for it,” Josh Altman, co-founder of Altman Brothers, told Yahoo Finance Live. video above). “Now, this will be a huge and crushing blow to that property.”
State farm cited “Historic increases in construction costs outweigh inflation, rapidly increasing exposure to disasters, and a challenging reinsurance market,” she said.
The move from State Farm follows AIG’s announcement last year that it was leaving the California market. AIG recently said it was limiting its property insurance coverage to New York, Delaware, Florida, Colorado, Montana, Idaho, and Wyoming, according to Insurance Journal.
And last week, Advertise nationwide “It is taking (action) to mitigate risks and manage personal and business line portfolios in the current environment.” Although there are no specific details on which personal insurance lines will be affected, the changes vary by state and territory, according to the Insurance Journal.
As more insurers leave California, it could turn into an imminent problem as rising costs make homeownership more expensive than they currently are with mortgage rates at 6.75%, Scott Sheldon, an affiliate manager at New American Funding, told Yahoo Finance. .
Property damage from wildfires and inflation is causing distress to primary carriers and reinsurers putting “the cost and availability of reinsurance as a risk financing mechanism…under constant pressure…to write profitable businesses in bushfire-prone areas,” according to Gallagher report.
For example, the average cost to build a typical single-family home last year was $153 per square foot, according to Policy survey from the National Association of Home Builders. That was the highest in the history of the series and is up 43% from $114 in 2019.
Add to this the growing losses from frequent and severe natural disasters – from wildfires to hurricanes. a CoreLogic Study Expect annual losses nationwide to increase to $23.5 billion annually by 2050.
As a result, homeowners insurance premiums are becoming more expensive. In 2022, those premiums increased 10.72% in the first quarter, according to an analysis by S&P Global Market Intelligence. The situation is even worse if there are few insurance companies on the market willing to cover your home.
“When your fire insurance doubles the amount of your mortgage each month, that’s a big deal,” Altman said. “You’re going to see those markets fall sharper than ever before.”
Other homeowners across the country are experiencing a lack of security from higher homeowners insurance premiums – along with increased property taxes.
Even the rich and famous are not immune from wildfire dangers and subsequent costs. Celebrities including Miley Cyrus, Gerard Butler and Neil Young lost their homes due to wildfires in 2018.
“The famous Mulholland Drive—try getting fire insurance up and down Mulholland now,” Altman said. “It’s almost impossible.”
Rhonda Lee is Yahoo Money’s chief personal finance correspondent and attorney with expertise in law, insurance, education, and government. Follow her on Twitter @employee
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