With State Farm announcing it will stop writing new home, business and casualty insurance in California, some Los Angeles agents expect it to change the home sales process, while others are taking a wait-and-see approach.
The state’s largest insurer cited “historic increases in construction costs faster than inflation, rapidly growing catastrophe risk and a challenging reinsurance market” as reasons for halting new policies in California. The state has seen a series of devastating wildfires in recent summers.
Insurance is crucial for potential homebuyers because lenders require it to protect their collateral before approving a loan.
Dedree Hoyt, who sells homes for Keller Williams Exclusive Properties in Los Angeles and Ventura counties, said she expects insurance prices to rise, which will cancel deals for potential homebuyers who can’t afford the extra cost.
She also predicts that agencies will have to move faster and be more organized.
“A week before we close escrow, we make sure the buyer has an insurance policy in place,” Hoyt said of how the business was conducted until recently. “But the moment it goes into escrow, we’re going to have to have an insurance policy in place.”
She also predicts that the State Farm announcement isn’t an issue just yet. “If other insurers follow State Farm’s lead, then we have a problem. Now it’s more of a glitch,” she said.
Mortgage broker Mark Cohen said State Farm’s pullback could have a short-term impact because it will be more difficult to get homeowners insurance. Cohen is CEO of Cohen Financial Group in Beverly Hills.
“Over time, State Farm’s void will be absorbed by the market. And other insurers,” he said. “Insurance may be more expensive because there is less competition.”
When the Northridge earthquake hit the market hard in 1994, Zane Widdes of Keller Williams’ Zane Widdes Group in Santa Monica sold his Northridge home. He remembers that loan and insurance policies in parts of Northridge and Los Angeles froze for about a month after the quake. Home sales were slow in the year after the disaster, but eventually business returned to normal.
“Insurers are back and more people are buying earthquake insurance,” Widdes said. He predicts that California’s insurance market will recover soon. “When it makes business sense for State Farm to come back, they will come back.”
