Insurance companies are leaving homeowners stranded in fire and flood-prone areas

As the wildfire season looms, major insurance companies hastily retreat from California, leaving thousands of homeowners scrambling for protection in a constricted and costly market.

According to Fox News, Allstate was the first to announce it was leaving the state in November 2022. The insurance company said it would pause new homeowners, condo, and commercial insurance policies.

State Farm, the largest home insurer in America, followed Allstate the next year. The company said it would stop accepting new policy applications in May 2023.

A few months later, Tokyo Marine joined State Farm and Allstate and left California. Fox News said the company did not specify the reasons behind its decision.

However, Trans Pacific, another company under the same parent corporation, left the state simultaneously. According to Fox News data, around 12,000 homeowners received non-renewal notices.

According to CNBC, the leading reason insurance companies leave California is the significant wildfires the state faces every summer, which affect thousands of people.

In addition to natural disasters, insurers cited inflation and high construction costs as reasons to leave the state and reduce their coverage.

CNBC cited experts who said the insurance landscape is tricky in California due to regulations that require extra approval from the local authority when a company wants to raise rates above 7%.

Michael Soller, a spokesperson for the state Department of Insurance, told The LA Times that California's situation is now "a tale of two states."

Soller explained that a person in the San Fernando Valley could easily insure their home with many options and prices, while someone in a neighborhood close to nature would have fewer options at higher prices.

Wildfires are a significant problem in California. According to the state Fire Department, in 2021, a terrible year, wildfires destroyed more than 2.5 million acres.

That is why Cal Fire has pushed for creative solutions in prevention, like using goats to clean dry and lost foliage near residential areas and hiring more first responder personnel during fire season.

Still, the local measures were insufficient to convince insurance companies that wildfires will not be as destructive and expensive as they have been in recent years.

"The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires," Allstate said in a statement collected by AP News.

Insurance companies are not only pulling from California, though. According to CNBC, the issue also affects other states, with several areas prone to natural disasters.

The outlet cited the cases of Florida and Louisiana, which have high flood and hurricane risks. In 2022, global insured losses from natural disasters topped $130 billion.

CNBC cited experts who said the ripple effect could continue nationwide as climate change intensifies natural disasters and makes them more frequent.