Allstate to write in California when it can price for cat models & reinsurance costs

US insurer Allstate has said that it will resume underwriting policies in California once new regulation has been enacted that allows it to price using forward-looking catastrophe risk models and include the costs of reinsurance within its rates, Bloomberg has reported.

New regulations are set to be enacted in California in response to what has been seen as an insurance crisis with carriers exiting the state after taking heavy wildfire and weather losses in recent years.

As we’ve previously reported, the rules are set to allow the use of forward-looking catastrophe models and to expand catastrophe model use to cover additional perils, while additional regulation is expected to enable insurance carriers to factor in their costs of reinsurance cover into their policy pricing as well.

Both of these issues, the inability to leverage modern catastrophe models for pricing and to price sufficiently to afford the cost of reinsurance, have been cited by a number of major carriers that have pulled-back on writing business in California in recent years.

Now, Bloomberg has reported that Allstate is ready to return, on the condition the new regulations are passed.

Bloomberg said that Gerald Zimmerman, senior vice president of government relations for Allstate, made the following comments at a public hearing earlier this week.

“If the regulations were in effect today, we would begin selling new homeowner insurance policies tomorrow.

“Let me repeat that: As soon as we can use catastrophe modeling and incorporate the net cost of reinsurance into our rates, we will be open to business in nearly every part of California.”

It is the first time a large insurer has publicly said that it would increase its appetite for risk in the state of California if these regulations are enacted.

The company said in a statement that, “Once home insurance rates fully reflect the cost of providing protection to consumers, we’ll be able to offer home insurance policies to more Californians with timely rate approvals, the use of our advanced wildfire modeling and reinsurance costs.”

It’s a positive signal and one that may be repeated by other carriers.

The cost of reinsurance remains a bit of an unknown though and it will be interesting to see how reinsurers respond to increased demand for coverage in the state of California again.

Reinsurers and insurance-linked securities (ILS) markets will no doubt be ready to support the needs of carriers like Allstate, if they start writing more business in California. But the cost of reinsurance coverage in the state is likely to be significant, which means there will be a need for consumers to be ready to pay higher rates as well, as the cost will always trickle down.

Also read: US property insurance market woes more widespread than just California: ALIRT.