State Farm Home Insurance bails on the state of California, citing booming construction costs, intensifying wildfire risks, and a challenging reinsurance market. Should homeowners be alarmed at this decision? This is the market brew.

State Farm, America’s largest home insurance company, is just the latest in a growing list of insurance companies that have stopped insuring within the state of California. Although current policies will not be affected by this change right now, State Farm has stated that they will not be taking on any new policies.

State Farm’s decision on its own isn’t the end of the world. As of right now, there are 112 other insurers operating within the state of California. However, this may be a sneak peek into what’s to come. If the cost of insuring properties within California continues to increase, it’s only natural that these other insurers will continue to pass the increased cost onto the consumer. How high can rates increase before they become untenable? Only time will tell.

But what does this mean right now if you are a homeowner, or you are looking to purchase a home in the foreseeable future?

If you are a homeowner, you don’t need to panic. If you currently have fire insurance, it is likely that you can continue to renew your policy. However, I would expect rates to continue to increase year over year. If you are in a high-risk fire zone, it is possible that you may one day find that your insurance company will decline to renew your policy. But as I said before, there are 112 other insurers within the state. As it stands right now, you will be able to find insurance, regardless of where your home is located, but the cost may be higher than you are used to.

If you are looking to purchase a home, it is important to obtain fire insurance very early within the transaction. Because, depending on the particular property, it may be difficult to find coverage. I am fairly confident that the vast majority of homes within the state of California are insurable. You just might have to put in a bit more work to find an insurer. But, fire insurance is one of those things that you need, if you are taking out a loan on a property, so expediency is crucial in order to not hold up your transaction.

Climate change is not going away. It seems that fires are getting worse within the state of California, from a strictly anecdotal perspective. I’ve lived here my entire life. If private companies fail to provide realistic, affordable insurance, it may be up to the government to step in and provide coverage. I don’t think that California of all places will just up and leave homeowners out to dry. If at some time in the future, there is an issue regarding homeowners’ insurance, I feel very confident that the state will step in to help, and if not the state, then the feds. Now, I could be wrong, and I could be way out of line in placing any faith in politicians, but hopefully not. However, put that aside, we are far from being here, and this is all speculation on my part.

Currently, what the exodus of State Farm means for many homeowners and potential homeowners, is cost. Losing such a big player in the industry is not ideal. Larger companies can typically offer lower rates because their risk is better spread out. Losing State Farm means costs will likely go up.

Another issue is bundling insurance. Many people in the state bundle their various insurance policies in order to get a better rate overall. With State Farm leaving, that is going to be more difficult, as some homeowners will need to utilize multiple insurers, again, driving costs up.

State Farm leaving California is not a good sign, but it’s also not the end of the world. It may be a sign of what’s to come, or it could be a big nothing. There are still many other options available for those who can no longer get a State Farm policy. Just be aware that it may take longer to find an insurer, and the cost may be higher than what you are used to.