State Farm, the largest insurer by market share in California, recently announced its decision to drop approximately 72,000 home policies in the state. This move comes as California faces an insurance availability crisis, causing concern among homeowners and policyholders.
In a press release, State Farm stated that it is working towards ensuring its long-term sustainability in California, which has led to difficult but necessary decisions impacting a portion of its policyholders. The decision will affect around 30,000 homes, rental units, and other dwellings, as well as approximately 42,000 commercial apartment policies. State Farm is completely withdrawing from commercial apartment policies.
While this represents about 2 percent of the company’s business in California, it is still a significant number. State Farm wrote more than $7.8 billion in premiums in 2022 but had nearly $6 billion in losses during the same year. The insurer claims that outdated regulations and a challenging business environment in California played a role in their decision, citing their responsibility to protect the company’s assets.
The state’s insurance commissioner has proposed changes to regulations that could help insurers raise rates to match increased risk, acknowledging the challenges faced by the industry. State Farm expressed its willingness to work with the governor and the insurance department to find solutions.
State Farm had already halted writing new policies last year due to various factors such as construction cost increases, catastrophe exposure, and a challenging reinsurance market. Reinsurance, which insurers purchase to cover losses, has become an issue for multiple insurers due to rising costs and state regulations preventing them from recouping these expenses through rates.
The state of California has seen an exodus of insurance companies in recent years, including Allstate and Hartford. In 2023, seven of the top 12 insurers left the California market in some capacity. This trend has left homeowners with limited options, forcing many onto the California FAIR plan, which was originally designed as an insurer of last resort but has now become the only option for some.
Unfortunately, the FAIR plan comes with higher rates that negatively impact families’ budgets. Homeowners who have lost their insurance with traditional companies now find themselves paying tens of thousands of dollars more per year for less coverage. Lawmakers have expressed concern about the lack of insurance options and have called on the insurance commissioner to take swift action.
The insurance market in California is undoubtedly at a crossroads, and change is necessary to bring relief to Californians. Insurance Commissioner Ricardo Lara agrees that immediate action is needed to address the insurance emergency faced by many residents.
In conclusion, State Farm’s decision to drop 72,000 home policies in California highlights the ongoing insurance availability crisis in the state. Outdated regulations, a challenging business environment, and rising costs have forced insurers to make difficult choices. As homeowners struggle to find affordable coverage, the California FAIR plan has become the only option for many, leading to higher rates and financial strain. Urgent action is required to address this insurance emergency and provide relief to Californians in need.
