State Farm quits another 72,000 California homes

State Farm Insurance will discontinue coverage for 72,000 houses and apartments in California this summer. California’s largest insurer, which is based in Illinois, cites soaring costs, the increasing risk of wildfires and other catastrophes, and outdated regulations for its refusal to renew  policies on 30,000 houses and 42,000 apartments, according to CBS News.

“State Farm General takes seriously our responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws,” the company announced. “It is necessary to take these actions now.” California’s insurance commissioner has undertaken a yearlong overhaul of home insurance regulations aimed at calming the state’s imploding market by giving insurers more latitude to raise premiums while extracting commitments from them to extend coverage in fire-risk areas.  The California Department of Insurance said State Farm will have to answer questions from regulators about this decision.

2018 Carr Fire -- USFS photo by Brenna Jones
2018 Carr Fire — USFS photo by Brenna Jones

MyMotherlode reported that State Farm said it will work with Governor Gavin Newsom and Insurance Commissioner Ricardo Lara to develop reforms that better align insurance rates with risk. Levi Sumagaysay with explains that many California homeowners are just now  discovering that their policies are being canceled — and hundreds of thousands of others are stuck with a pricey option of last resort — and for them Commissioner Lara’s efforts to fix the market can’t come soon enough.

Lara has introduced two main regulations, with more to follow. The first, unveiled last month, will streamline rate reviews. State law gives the Insurance Department the power to approve or deny insurers’ requests to raise premiums. Insurance companies complain the process holds up requested increases caused by rising climate-change risks and inflation.

The second regulation will let insurers use catastrophe modeling — which combines historical data with projected risk and losses — along with other factors when setting their premiums. California is the last state to allow this catastrophe modeling.

“We’re undertaking the state’s largest insurance reform,” Lara said earlier this month. “We can no longer look solely to the past to guide us to the future.”

This new round of cancellations accounts for just 2 percent of State Farm’s policies in the state, and the company did not indicate which regions are hit hardest, nor its criteria for selecting non-renewals.

We reported last August that several major insurance companies had stopped accepting California homeowners for new policies because of growing wildfire risks. As the number of fires in the state increases and other factors escalate, insurance companies worry about the risk — and the expense.

Residents in high-risk fire areas or hurricane regions need homeowners’ insurance — and lenders require it. No insurance, no home loan. More people are moving into the interface, costing insurance companies too much to repair and replace houses while battling inflation, said Janet Ruiz with the Insurance Information Institute. Two insurance giants withdrew from California’s home insurance marketplace, explaining that increasing wildfire risk and soaring construction costs have resulted in their decisions to stop writing new policies in the state. “We take seriously our responsibility to manage risk,” State Farm said. “It’s necessary to take these actions now to improve the company’s financial strength.”

State Farm: No new California homeowners’ policies

UPDATE 06/02/2023 — Allstate and Farmers join State Farm in denying new homeowner policies in California. State Farm quit selling new homeowner policies on Saturday, and now a second major carrier, Allstate Insurance, has confirmed it ended new homeowners’ policies in the state last year. On top of that, ABC-7 News reported that Farmers Insurance is now limiting policies for new customers. All three companies are still serving existing customers, and more than 100 other companies are still issuing new homeowners’ policies, but homeowners across the state will have a tougher time buying coverage.

State Farm will no longer provide home insurance to new California customers because of wildfire risks and increased construction costs. The company quit accepting new applications for business and personal lines and casualty insurance in California, USA TODAY reported.

California construction costs
Estimation QS
Building Cost Estimating, Construction, Outdoor Projects and Activities

State Farm said it will still work with the California Department of Insurance and lawmakers and will still serve existing customers.

The Oregonian reported that last year, California became the first state to require insurance premium discounts for those with wildfire protection safeguards at homes or businesses. That change was in response to soaring insurance costs for customers in high-risk areas.

“State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market,” the company said in a statement.

Top ten states by acres burned
Top ten states by acres burned, 2016-2020.

CNN reported that scientists and California officials blame the climate crisis for the intensity of fire seasons. About 25 percent of the state’s forestland burned in the last 10 years — more than triple the previous decade.

The factors behind Illinois-based State Farm’s move are beyond the agency’s control, Michael Soller with the California Department of Insurance said. State Farm, with its affiliates, is the largest provider of auto and home insurance in the U.S.