Which Property Insurers are leaving California?

As a Los Angeles homeowner, understanding the evolving landscape of property insurance in California is crucial. The recent decisions by two major insurers to exit the California market underscores a broader trend that could significantly affect your insurance choices and costs.

In July, Tokio Marine America Insurance Co. and Trans-Pacific Insurance Co., subsidiaries of Japan-based Tokio Marine Holdings Inc., will cease providing homeowners insurance in California. This move is part of a larger pattern of insurance companies pulling out of the state due to increasing risks and costs associated with natural disasters like wildfires, which are intensified by climate change.

This development impacts approximately 12,556 policyholders, who will soon need to find new insurers in an already strained market. Tokio Marine has stated that the withdrawal is due to the unsustainable costs of providing personal lines of insurance, such as homeowners and umbrella policies, though they will continue to offer commercial insurance.

Are Property Insurers Leaving California a Trend or One-Off?

The trend is not isolated to Tokio Marine; it reflects a growing crisis in California's insurance industry. In the past year, seven of the 12 largest insurance groups in the state have either paused or restricted new homeowner policies. Giants like Allstate and State Farm have also scaled back their operations, citing similar concerns over wildfire risks and rising operational costs, including "historic" increases in construction costs and inflation.

These changes come amidst a broader regulatory and economic context. Insurance companies are grappling with the challenges posed by increased frequency and severity of natural disasters, regulatory costs, and economic inflation. The decision by insurers to limit their exposure in California is a protective measure against potential massive payouts following catastrophic events.

Impact on Los Angeles Home Buyers and Home Sellers in 2024 and 2025

As a real estate and finance expert, it is important to highlight the substantial implications that the evolving insurance landscape has on the Los Angeles real estate market, particularly for home buyers and sellers in 2024.

For Home Buyers

Home buyers in Los Angeles need to be particularly diligent in their purchasing decisions this year. The exodus of major insurers from the California market means:

1. Higher Insurance Premiums: With fewer insurers operating in the state, the competition is reduced, which typically leads to higher premiums. Buyers should budget for potentially higher ongoing homeownership costs.

2. Insurance Availability: Securing a homeowners insurance policy may be more challenging. This could delay closing processes or, in some cases, deter lenders from approving mortgages if insurance coverage cannot be confirmed.

3. Due Diligence: Buyers should conduct thorough risk assessments of properties to understand potential insurance costs or difficulties. This includes evaluating the property's susceptibility to wildfires, its construction materials, and any existing mitigation measures against natural disasters.

4. Negotiation Leverage: In light of these challenges, buyers may have more leverage to negotiate purchase prices, especially if a property is in a high-risk area and has been difficult to insure.

For Home Sellers

Sellers in the Los Angeles area also face distinct challenges in 2024 due to the shifting insurance market:

1. Property Value Impact: Homes in areas particularly prone to wildfires or other natural disasters might see a dip in property values if insurance becomes too costly or difficult to obtain. 

2. Marketability: Selling homes may become more challenging if potential buyers struggle to secure homeowners insurance. Sellers might need to consider additional incentives, such as paying for the first year of homeowners insurance or assisting in securing a policy.

3. Home Improvements: Investing in disaster mitigation improvements (such as fire-resistant roofing or landscaping) can enhance a home's appeal and insurability. These improvements could be a selling point, making a property more attractive to buyers concerned about insurance availability and costs.

4. Transparency: Sellers should be transparent about the availability and cost of insuring their property. Providing prospective buyers with this information can help facilitate smoother transactions and avoid delays or cancellations due to insurance issues.

Broader Market Considerations

The changing insurance dynamics in California are likely to influence broader market behaviors:

Shift in Buyer Preferences: There might be a shift in buyer preferences towards properties in areas with lower risk profiles or those well-equipped against potential disasters.

Influence on Lending Practices: Lenders might revise their policies regarding loan approvals based on insurance availability, possibly requiring higher down payments or additional insurance coverage for homes in high-risk areas.

Strategic Advice

Both buyers and sellers should engage with knowledgeable real estate agents, insurers, and risk assessment professionals to navigate these complexities effectively. Staying informed and proactive in addressing insurance-related challenges will be crucial in 2024's dynamic real estate environment in Los Angeles.

Contact Us to help navigate Real Estate

In summary, the retreat of insurers like Tokio Marine signals a critical time for California homeowners. With the insurance market in flux, it is more important than ever to stay informed, reassess your insurance needs, and take proactive steps to protect your home and financial well-being.

If you are considering buying or selling a home within the Greater Los Angeles County area, please contact me and I’ll further explain how to better position yourself to buy or sell a home with these new developments. 

Thank you. 

Blayne Pacelli - Blayne Pacelli Realtor

(818) 383-6281