It was in the newspaper that Jamie Lafollette learned that State Farm was going to stop insuring him.
The article explained that the insurer was pulling out of Santa Cruz County, where she lives. She called her agent, who confirmed the news, then began a frantic search for a new insurer. She’s still looking.
“The first quote was US$10,000 per year, and that was the minimum coverage,” she says. “I kept digging around, calling brokers…I contacted all kinds of weird companies that no one has ever heard of. »
It was even worse: US$17,000 to US$25,000 per year, she says.
The Lafollette family lives near Soquel, not far from Monterey Bay and its splendid view of the Pacific. But this green and peaceful place now poses a problem: the risk of forest fires continues to increase and the Lafollette house is surrounded by trees.
PHOTOS CLARA MOKRI, THE WASHINGTON POST
Left: Sara, Jamie and Joseph Lafollette. Right: Jamie Lafollette picks flowers for the sheep the family purchased to reduce vegetation and therefore the risk of fire on their land.
This increased risk makes home insurance more necessary than ever, but for Mme Lafollette, the premiums required are unaffordable.
I’m at a point where I’m wondering if I’ll be able to keep my house.
Jamie Lafollette
According to State Farm, only 2% of its insurance policies have been canceled in the state.
No viable option
This does not change the dilemma of owners like Mme Lafollette, who find themselves without a viable option. His problem is also that of a growing number of Americans. According to the Insurance Information Institute, 5% of homeowners did not have insurance in 2019; in 2022, this figure reached 12%.
Most uninsured homeowners have paid off their mortgage and are no longer required to carry insurance. Only 2% of mortgage holders go without coverage, estimates the Consumer Federation of America.
PHOTO CLARA MOKRI, THE WASHINGTON POST
State Farm insurer has stopped covering the home for the Lafollette family, who wonder if they will be able to keep the house.
Experts attribute the trend to climate change – which is forcing insurers to pay out ever larger compensation payments – and skyrocketing property prices. These two factors drive up the cost of insurance. On average, homeowners insurance premiums increased 11.3% in the United States in 2023, according to S&P Global.
Insurers, scalded by rising compensation, are withdrawing from risk areas, which aggravates the problem. Their former customers are left with fewer options, all more expensive.
Homeowners who don’t insure don’t do it by choice, says Mme Lafollette. When their policies are terminated, they find no alternative.
Not having insurance is very risky, says Mark Friedlander, spokesman for the Insurance Information Institute: “An owner cannot pay for catastrophic losses out of pocket; that’s completely unrealistic.” »
The rise in uninsured properties is all the more striking as mortgage lenders require borrowers to carry insurance.
In extreme cases, a homeowner who stops paying their insurance premiums can be considered in default and have their home seized, recalls Mr. Friedlander. As a general rule, the bank will opt instead for compulsory coverage billed to the customer. But there is little chance that this insurance will cover natural disasters.
PHOTOS CLARA MOKRI, THE WASHINGTON POST
Left: One of the sheep purchased by the Lafollette family, which are mainly used to reduce vegetation and the risk of fire on their property. Right: Sara Lafollette, watering the plants.
Meanwhile, State Farm and other insurers have made headlines by pulling out of wildfire-prone counties like Santa Cruz. Homeowners in other states, like Iowa, are also starting to get dropped by their insurers as climate change increases the risk of natural disasters.
Insuring these regions is no longer profitable, explain these insurers. And not just because of compensation: reinsurers, like Swiss Re, which cover insurers’ risks in the event of a catastrophe, also increase the premiums of companies like State Farm, observes Marco Giacoletti, who teaches finance and business economics. business at the Marshall School of Business at the University of Southern California.
Meanwhile, in some states, including California, Colorado and Florida, rate increases are subject to approval by regulators, who don’t always let insurers pass all their costs on to the consumer, Mr. Giacoletti says.
In California, insurers are required to use historical data, not forward-looking models, when setting insurance premiums: their policies may not reflect the actual risk they cover, Mr. Giacoletti adds: “With the changes “We must use prospective models, otherwise insurers cannot correctly price their plans”, resulting in large losses following extreme climatic events.
PHOTO CLARA MOKRI, THE WASHINGTON POST
Joseph Lafollette, a veteran who returned home with a disability, has developed a support network in the region. Moving will be difficult.
In March, California’s insurance commissioner approved the 20 percent rate increase requested by State Farm.
Foreclosed homeowners have few options in an increasingly expensive market.
M’s husbandme Lafollette is a disabled veteran and the family has built a local support network: moving is not ideal, far from it. The municipality has invested significant sums to reduce the risk of fire and hopes to convince insurers to maintain their policies: “It was very hard to convince the community to invest in this,” explains M.me Lafollette. “But no one can afford to be without coverage. »
According to experts, what M is experiencingme Lafollette and his fellow citizens announce difficult times on our warming planet.
“People are really feeling climate change,” says Emily Schlickman, who works on climate adaptation and teaches land use planning at the University of California, Davis. “Not being able to get insurance is one of the first ways we see our new reality,” she adds.
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