Two more insurance firms are dropping out of California. Tokio Marine America Insurance Co. and Trans Pacific Insurance Co. will not renew its customers’ home insurance policies, the California Department of Insurance. This summer, the corporations will begin mailing nonrenewal warnings to their consumers.
Compared to some high-profile withdrawals, these companies are rather tiny, insuring approximately 12,000 residences. According to Jazmín Ortega, deputy press secretary for the state’s insurance department, this is unlikely to impact the California market due to the companies’ small market share and the availability of other options.
However, their departure could exacerbate the insurance availability situation, as more than 90% of companies in the admitted California insurance market either do not sell new property insurance or have stringent limits. The Susman Insurance Agency found that around 70% of the companies listed in the California Department of Insurance’s Home Insurance Finder service do not currently provide new plans.
In filings with the state’s Department of Insurance, the firms did not identify their reasons for withdrawal, although some, such as State Farm and Allstate, expressly highlighted wildfire risk. Both are subsidiaries of Tokio Marine Holdings, Inc., a Japanese firm, and want to exit both the homeowners and personal umbrella insurance sectors. The fact that they are not renewing personal liability insurance may imply that they want to exit California entirely, rather than adjusting their risk exposure before returning to the market.
“This is bad timing,” said Karl Susman, a broker and insurance specialist. “Because there’s no place for [customers] to go other than the FAIR Plan that is already bloated and overexposed based on what they’re designed for and what they’re financed for.”
The FAIR Plan is California’s insurer of last resort, allowing clients to purchase an insurance when no other business will provide coverage. It’s pricey insurance, and the policies are usually very bad. Its numbers have also increased dramatically in recent years.
“The FAIR Plan is getting a thousand applications per 24 hours, which is outrageous to even conceive of,” Susman went on to say.
The FAIR Plan now insures more than $300 billion in assets, a threefold increase from four years ago. In the event of a large-scale tragedy, the company may become insolvent, causing devastating ripple consequences due to its limited savings in the bank.
The timing of the latest insurance business exit is especially unfortunate and, to some observers, perplexing given the state is in the midst of a major revamp of insurance legislation that is expected to relieve circumstances for insurance companies. The state’s insurance agency spearheads the Sustainable Insurance Strategy initiative. The planned modifications, many of which are wanted by the insurance industry, are halfway through implementation, with more to be revealed soon, and will take effect at the end of the year. The upcoming hearing on April 23 will address catastrophe modeling.
“We literally are at the tail end of all of this [instability] before the carriers have the ability to underwrite, price, discount and do all of those things, and are able to come back and start competing again,” Susman said.