Around 1,300 homeowners in Oklahoma will soon need to secure new insurance, as Farmers Insurance announced it will not be renewing certain policies in the Sooner State, based on wildfire risk.
The policies are scheduled to expire in November. “Farmers is making a move not just in Oklahoma, but nationally to try to reduce their risk specific to wildfire,” Oklahoma Insurance Commissioner Glen Mulready said in a statement to local station KXII. The affected homeowners will need to get a new policy in place. There are roughly 100 insurance companies operating in the state, Mulready added. “We have a lot of competition out there.”
Firefighters from Oklahoma work in the national forest west of Show Low, Arizona, as they cool off a tree stump on June 26, 2002. Farmers Insurance will not renew policies for around 1,300 homeowners in Oklahoma.
STEPHAN SAVOIA/AFP via Getty Images
“Farmers is not leaving the state of Oklahoma and continues to offer auto, home, and other personal lines products in the state,” a company spokesperson told Newsweek. “We regularly make adjustments to our product, underwriting, and pricing to ensure we can continue to meet the needs of our customers. Those who may be affected by underwriting changes are encouraged to discuss options with their Farmers agent.”
This isn’t the first time a home insurance company ended coverage for some in certain states over natural disasters. Homeowners in Florida, California and Texas also grappled with cancellations, creating a tighter market of insurers to choose from and potentially opening the door for homeowners to become uninsured due to affordability concerns.
“With the continued high cost of raw materials and supplies for repairs and construction, the profitability of homeowners insurance carriers in many areas have pushed them to reevaluate their risk exposure,” title and escrow expert Alan Chang told Newsweek. “If the company is paying out more than it makes in a given region, it makes sense for them to review their options, this may result in pulling out of a particular territory.”
Farmers was Oklahoma’s second-largest homeowner insurer, but less than 2 percent of the company’s home insurance business is set to be affected.
Alex Beene, financial literacy instructor for the University of Tennessee at Martin, said losing home insurance has become a more common reality for some homeowners in recent years as home prices surge.
“As housing prices have swelled as have the costs to replace them, so too have insurance prices to cover potential damage,” Beene told Newsweek. “And when you mix those increased expenses with a home in an area that is highly likely to encounter some type of natural disaster, it’s forcing insurance providers to raise premiums to unfathomable heights or just drop coverage completely.”
These changes can cause considerable difficulties for homeowners, especially if they aren’t able to find a new policy to cover their property.
“Not only are they living in a property that won’t be covered in the case of damage, but the odds of them being able to relocate and sell that property go down considerably based on that same circumstance,” Beene said.
In an ideally competitive market, you would see smaller insurance carriers come and pick up the pieces, said Kevin Thompson, finance expert and founder of 9i Capital Group. But homeowners in Oklahoma at the moment will likely see their rates increase or be forced to use less stable carriers.
“The nature of wildfires has become an industry pain point,” Thompson told Newsweek. “Thousands of homes are destroyed every year due to wildfires and other natural disasters which forces insurers to pay out claims and seek partnerships with reinsurers to offset or transfer risk.”
