California’s home insurance crisis is worsening as State Farm, the state’s largest private insurer, has declared that it will terminate coverage for 72,000 homeowners beginning in the summer, which coincides with the peak of wildfire season.
State Farm General, an insurance company based in Illinois, announced in a press release on Wednesday that it will not be renewing policies for approximately 30,000 homes and 42,000 apartments in California. According to the company, this accounts for slightly over 2 percent of its policy count in the state.
State Farm’s decision to cease thousands of policy renewals is expected to have a significant impact on the state’s homebuyers and the entire sector. As the company accounts for a fifth of the state’s home insurance market, this move is likely to have a profound effect. It is worth noting that State Farm had already made a similar announcement nine months ago, stating that it would not issue new home policies in the state.
Private insurers in California are making adjustments to their policies due to the increasing costs and declining profits associated with the rise in extreme weather events. As the state continues to experience more frequent and severe occurrences such as devastating wildfires, insurers have decided to either cease offering new policies or restrict coverage. These decisions are driven by the recognition that climate change has contributed to the heightened risk of such events, leading to financial concerns for insurers.
Earlier this month, American National, a private insurer based in Texas, notified the California Department of Insurance that it plans to discontinue its homeowner insurance policies by the fall. Nonrenewal notices will be sent out starting in August. In addition, Allstate and Farmers have taken similar actions by either pausing new policies or implementing new limits on them in the state of California.
State Farm released a statement on Wednesday, explaining that the decision to make changes was not taken lightly. They conducted a thorough analysis of State Farm General’s financial health, taking into account factors such as inflation, catastrophe exposure, reinsurance costs, and the constraints posed by outdated insurance regulations.
“Maintaining sufficient claims-paying capacity for our customers and adhering to financial solvency laws is of utmost importance to State Farm General,” the company emphasized. “These measures need to be implemented at this time.”
State Farm and the California Department of Insurance were contacted by Newsweek for comment via email on Friday.
California’s Insurance Commissioner is currently proposing regulatory reforms to stabilize the volatile home insurance market in the state. As part of these reforms, one proposal is to grant companies greater flexibility in raising their premiums. State Farm has acknowledged this proposal but has stated that it is unable to alter its decision at this time.
State Farm expressed its recognition of the proposed regulatory reforms by the Insurance Commissioner. They acknowledged the importance of streamlining the rate application process, accounting for catastrophe modeling and reinsurance costs in rates, and addressing vulnerabilities in the FAIR Plan.
“We are committed to collaborating with the California Department of Insurance, the Governor’s Office, and policymakers to drive these reforms forward. Our goal is to create a conducive environment where insurance rates accurately reflect the associated risks.”
State Farm has announced that they will inform policyholders in advance about the expiration of their policies. According to the company, policyholders will also receive details about alternative coverage options.
According to the San Francisco Chronicle, a rising number of California homeowners have been forced to turn to the FAIR Plan, the state’s insurer of last resort, due to a limited range of choices. Since the end of 2022, the number of FAIR Plan policies has surged by more than 25 percent, reaching a total of over 350,000 policies.
