In California, insurers AIG and Chubb are not renewing certain homeowners’ insurance because of California’s regulations which make doing so unprofitable. Understand that insurers are in business to make money and when they can’t they move on to greener pastures. Don’t be caught off guard if your insurers change the rules of the game on you. Leslie Scism reports in The Wall Street Journal:
Worried about wildfire exposure and frustrated by state regulations, insurers in California have been cutting back on their homeowner businesses. Now, affluent homeowners are feeling more of the pain, as two of the biggest firms offering protection for multimillion-dollar properties end coverage for some customers.
As early as this month, American International Group Inc. AIG +3.07% will begin notifying about 9,000 customers in its Private Client Group that their home policies won’t be renewed this year. The change is part of a plan by AIG to cease selling home policies in California through a unit regulated by the state’s insurance department.
AIG told insurance brokers in an email late last year that some policyholders instead may be eligible for coverage via another AIG unit. The other unit operates alongside other so-called excess-and-surplus lines insurers, which have more freedom on policies’ rates and terms than do insurers in the broader, tightly overseen home-insurance market.
The policies could cost three to five times what AIG’s clients now pay, with less-generous coverage, brokers said.
“AIG is the first high-net-worth carrier to say ‘we’ve had it, we’re divorcing ourselves from California’s regulated market,’ ” said Jim Tolliver, an insurance broker in San Francisco with Woodruff Sawyer & Co., who fears others will follow suit.
Chubb Ltd. CB +3.42% , the biggest high-end insurer in the state, is continuing to non-renew some policies. But, “we are still accepting new customers across the state in areas where we have a fair chance of earning an adequate return,” Paul Krump, a Chubb vice chairman, said last week.
In an earnings call in October, Chubb Chief Executive Evan Greenberg said the insurer’s California shrinkage was “not a small amount” in locations “both highly exposed and even moderately exposed to wildfire.” He said “someone else will have the pleasure of writing” business for which “we cannot charge an adequate price for the risk.”
Chubb, which declined to provide policyholder figures, aims to offer excess-and-surplus policies to many policyholders who aren’t renewed.
The moves by AIG and Chubb follow years of non-renewals by mass-market insurers. California regulators have been encouraged that parts of the broader market are showing signs of stabilizing, thanks to recent rate increases. Allstate Corp. , Farmers Insurance and some others have committed to adding policyholders.
Some insurers are frustrated that California regulators require them to set home-insurance rates based on their historical loss experience, not projections of future losses that are determined by catastrophe modeling. Such models can reflect detailed, location-specific data that the insurers feel they need amid escalating wildfire activity tied partly to climate change.
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