With State Farm’s announcement that it will stop writing new home, business and casualty insurance in California, some L.A. agents anticipate that it will change the process of home sales, while others take a wait-and-see approach.
The state’s largest insurance company cited “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure and a challenging reinsurance market” as reasons to cease writing new policies in California. The state has had a series of devastating wildfires in recent summers.
For potential homebuyers, insurance is critical because lenders require it to protect their collateral before approving a loan.
Dedree Hoyt, who handles home sales in Los Angeles and Ventura counties for Keller Williams Exclusive Properties, said she anticipates insurance prices would drive up, which would nix deals for those prospective homebuyers who wouldn’t be able to absorb the extra costs.
She also forecast that agents will have to move faster and be more organized.
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“A week before we closed escrow, we would make sure the buyer had enacted an insurance policy,” Hoyt said of the way business had been conducted until recently. “But the minute it goes into escrow, we’re going to have to get that insurance policy put in place.”
She also forecast that State Farm’s announcement is not a problem — yet. “If the other insurance companies follow State Farm, then we have a problem. Now it’s more of a glitch,” she said.
Mortgage broker Mark Cohen said that State Farm’s pullback might have a short-term effect because it will be harder to get homeowner insurance. Cohen is CEO of Cohen Financial Group in Beverly Hills.
“Over time, State Farm’s void will be absorbed by the market. There are other insurers,” he said. “Since there’s less competition, insurance probably will be more expensive.”
Zane Widdes of Zane Widdes Group at Keller Williams in Santa Monica sold homes in Northridge when the massive Northridge earthquake devastated the market in 1994. He remembers lending and insurance policies in Northridge and some parts of Los Angeles froze for about a month after the quake. Home sales were slow for a year following the disaster, but eventually business returned to normal.
“Insurers came back, and more people bought earthquake insurance,” Widdes said. He forecasts that California’s insurance market will recover soon. “When it makes business sense for State Farm to come back, they’ll come back.”