Another Home Insurer Leaves California And Eight Other States

Californians struggling to find homeowners insurance got some more bad news when 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 has also announced plans to cancel homeowner policies in eight other states.

American National's spokesperson announced the decision and spelled out some of the reasons behind it in saying, "This action is driven by significant and persistent profitability issues in the homeowners insurance market." 

Specifically, the statement cited the following issues in explaining why it's no longer viable to write homeowner's policies in California and the affected states:

• Inflationary pressures driving up costs
• Increasing claims frequency
• Competitive market conditions

Just A Few Hundred California Claims Could Wreak Havoc

The harsh reality is the cost of covering claims is simply outpacing American National's ability to raise premiums and still be profitable for its shareholders. This is despite collecting an estimated $37.9 million in annual premiums from the Golden State. That may sound like a lot of money, but when you spread it out over 37,000 policies, it's not hard to see where California's combination of wildfires, mudslides and floods could wipe the company out.

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Take the Los Angeles market, where the median home price has been hovering around $1 million for the last several years. A single year's worth of wildfires, floods and mudslides that wiped out just 100 homes in the Los Angeles area could mean $100 million in claims exposure for American National. Considering $1 million is only the median home price, it's likely the final tally could be much higher.  

That's just Los Angeles. If another 100 American National policyholders in San Francisco and San Diego file total loss claims on their homes, American National's exposure would be in the hundreds of millions. Add that to American National's everyday cost of doing business and the company could be devastated by just a few hundred claims in one state.

For Insurers, The Risk Outweighs 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 can't be managed. The pullback might make financial sense for American National, but it's just the latest dark turn in what is becoming a nightmare for California homeowners. Every time an insurer leaves the state, the remaining insurers have less competition.

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Before American National's pullout, State Farm Insurance, Allstate Corp. and Farmers Insurance Group had all announced they were exiting California or placing new restrictions on homeowner policies. That translates to higher premiums and higher deductibles for the homeowners who can get policies. California's state-run FAIR Plan, which was set up to be an insurer of last resort, is receiving thousands of new applications per day.

Is The Insurance Crisis Coming To Your State Next?

The insurance crisis started in Florida, where residents pay the highest national average premium because of the frequency and intensity of the hurricanes that have hit the state in the last decade. Then it spread to California, but American National's decision to drop coverage in eight other states is a sure sign the crisis is spreading and could be coming to your state.

The other eight states American National 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, many deals that may have looked like can't-miss prospects a few years ago might not be so attractive now. Apart from that, both everyday homeowners and prospective buyers may want to brace themselves for sticker shock the next time they go shopping for a policy.

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