What Happened: AIG is planning curbs on home-insurance sales in 200 ZIP codes at high risk of floods or wildfires, including states such as New York, Delaware, Florida, Colorado, Montana, Idaho and Wyoming, reported the Wall Street Journal.
Farmers Group has already stopped offering new home insurance policies in hurricane-prone Florida. State Farm and Allstate are pulling back from California's home insurance market, leading to fewer insurance choices for homeowners.
The increased risks and costs associated with climate change, including severe wildfires and hurricanes, have taken a toll on insurers' earnings. Payouts on claims to California homeowners more than doubled from 2019 to 2022, while premiums only increased by around a third during the same period.
Why It Matters: Consumer advocates argue that major insurance companies are using their market power to push back on policyholder protections. They accuse insurers of exploiting the moment to achieve long-desired goals and trying to avoid oversight.
The rising costs of rebuilding due to inflation and supply-chain disruptions have further impacted insurers' profitability. Construction costs, including labor and materials, have increased by 25% in California since the beginning of 2020. Insurers, already facing short-term losses, are struggling to maintain profitability.
Insurance companies are seeking changes to the state system to allow them to increase premiums more easily. They argue that the current system, which relies on historical claims data and doesn't incorporate potential wildfire risks and reinsurance costs, is inadequate. However, even without these changes, insurance rates are already increasing significantly in California.
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This article was generated using ChatGPT and was reviewed and edited by a Benzinga editor.
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