With the departure of these two organizations, Californians will have even fewer options when shopping for homeowners insurance or a mortgage. The California homeowner and personal umbrella insurance products of AmGUARD Insurance, a Berkshire Hathaway GUARD Insurance Companies subsidiary, will be discontinued, and a similar move will be made by Falls Lake Insurance.
The announcements were made by both corporations on July 21 in filings with the state regulator that received relatively little attention. The two firms are the most recent examples of insurers leaving or drastically scaling up their operations in California in the past 12 months.
However, unlike industry giants State Farm and Allstate, AmGUARD and Falls Lake will be canceling all of their existing homes policies in the state. That will compel tens of thousands of Californians to look for new insurance just as the number of providers is declining. When asked for comment on the filing, a representative from Berkshire Hathaway GUARD Insurance Companies declined.
The tweet below verifies the news:
— Jennifer Van Laar (@jenvanlaar) August 16, 2023
Multiple messages sent to Falls Lake went unanswered. AmGUARD announced in a withdrawal file with the California Department of Insurance that it would stop renewing policies beginning in the middle of November. According to a prior filing, as of the last day of the 2022 reporting period, the company had 50,212 active policies.
The application listed a “effective date” in mid-September, however Falls Lake did not specify when the purported nonrenewals would begin. According to the California Department of Insurance, there are roughly 900 policies in effect for the business.
Insurers have been pulling out of California due to high wildfire threats, climate change, high inflation, rising construction costs, and a regulatory framework that makes it difficult for companies to have rate hikes approved, according to representatives from the insurance industry.
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They claim that the combination of these issues has made it harder for insurance companies to generate a profit in the state. Michael Soller, a spokesman for the Department of Insurance, told The Standard via email, “AmGUARD first began writing in California markets in 2019, reporting substantial losses in 2020, 2021, and 2022 that were extremely high and not representative of the market as a whole.”
He also noted that the companies’ losses in 2020–2022 were sometimes twice as high as average. The California Department of Insurance ranks the Berkshire Hathaway Group, AmGUARD’s parent company, as the third largest writer of property and casualty insurance (which includes more than just homeowners insurance) in terms of written premiums. Geico is a subsidiary of the company.
They want to maintain a sizable presence in the Golden State, though not provide homes insurance. The “inability to obtain reinsurance” was listed as the reason for Falls Lake Insurance’s decision to end coverage for homeowners un the filing.
An insurer may engage in reinsurance, also known as “insurance for insurance companies,” in order to ensure that it will have the financial resources to cover claims in the case of a catastrophic catastrophe.
“When reinsurers charge more—[and] the rates have gone up substantially—or don’t want to write as much, then it’s up to the actual insurance company to either retain more of the risk on their books or shop and pay the higher price,” said Janet Ruiz, communications director at the Insurance Information Institute, an industry group.
State Farm, the largest writer of homes insurance in California, said on May 26 that it will no longer accept new applications for coverage in the state, effective immediately. This came just days before the Memorial Day weekend. Another major participant, Allstate, ceased issuing new policies for homes, condos, and businesses, according to the San Francisco Chronicle the following month.
The hopes that other large insurers would step in to fill the void left by State Farm and Allstate were dashed in July when Farmers Insurance said it would restrict new business in the state. Liberty Mutual has also announced that, beginning in the fall, it will no longer provide business-owner plans.
The Standard reported earlier this month that SafeCo, a subsidiary of Liberty Mutual, would cancel more than 950 policies in the Bay Area.
Homeowners insurance is a legal requirement for anyone obtaining a mortgage in the state of California, but the quick withdrawal of insurance firms has made it more difficult to obtain. More consumers now have to rely on the California FAIR plan, which is a provider of last resort for fire insurance, because of this.
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“Every bit of news like this has been bad news,” said Amy Bach, who heads United Policyholders, a San Francisco-based nonprofit that fights for insurance consumers. Before State Farm stopped accepting new customers, it was a viable option for homeowners who had been dumped by their previous insurer to obtain new coverage. We have fewer choices now.
“We’re definitely in an unprecedented, challenging time, at least in certain regions of the state,” Bach said. However, Soller of the Department of Insurance sounded more upbeat.
“California’s market is robust but it is not immune to wildfires, extreme heat, and coastal and inland flooding,” he said in an email. “[The Department of Insurance’s] focus is on implementing necessary insurance market reforms to expand consumers’ choices in California, especially in high risk areas.”
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