Farmers Insurance Group, the Los Angeles-based insurer group of vehicles, homes and small businesses, announced this week that they will be laying off 2,400 workers, largely because of large increases in construction and reconstruction costs, inflation, and a largely increased risk of danger because of more wildfires and other natural disasters.
In the past three months, 5 insurance companies operating in California have either stopped accepting all new homeowner insurance applications or put severe limits on how many new applications can be accepted in a year. State Farm became the first company in May to no longer accept new applications for any kind of insurance other than personal vehicle insurance. In June, Allstate made a similar announcement, saying that they had already not accepting new applications all year. Farmers was the next to announce last month, reducing the overall number of new monthly policies that they would accept.
Earlier this month the most recent insurance companies to announce that they would be ending homeowners policies, AmGuard and Falls Lake, only further limited the insurance options for homeowners. This is all on top of several insurance companies, such as AIG, leaving the California homeowners insurance market in the past few years.
While Senate Republicans and other groups in Sacramento have pushed for Gavin Newsom, the Legislature, and Insurance Commissioner Ricardo Lara to confront the problem head on, little has been done. While many insurance-related bills were also passed last year, when the problem became much more noticeable, most had to do with either consumer protections or health insurance. With no help from the state, and economic and climate situations not improving, Farmers announced that they will be laying off 2,400 workers, or approximately 11% of their total current workforce.
In a layoff announcement on Monday, President and CEO of Farmers Raul Vargas said that “Given the existing conditions of the insurance industry and the impact they are having on our business, we need to take decisive actions today to better position Farmers for future success. As our industry continues to face macroeconomic challenges, we must carefully manage risk and prudently align our costs with our strategic plans for sustainable profitability.”
For many, the decision by Farmers seems to be a preemptive move. While companies like State Farm lost more than $2 billion in the first quarter of 2023 because of huge losses in home and car insurance, Farmers only lost $150 million and is substantially in a better position. Despite this, market forces and the increasingly dire situation for insurance companies in California continued to take their toll.
“Farmers and other insurance companies are in no-win situations right now in California,” said Trevor Connery, a lobbyist who has worked for insurance companies in the past. “Weather, like wildfires and flooding, continue to wreck the state. The state has been putting in a lot of measures to lessen their chances and minimize their impact, but it is still a lot. People continue to need insurance. It’s not required by law, but pretty much every bank or loaner will want it as a term for the loan. And costs of everything are going up. What can you really do?
“2,400 people lost their jobs, so I hope this is the wake up call needed for the state to actually do something substantial. But they didn’t when companies pulled out earlier this year, so like many in the insurance industry, we’re not holding our breath here.”
As of Monday evening, it is currently unknown if other major insurance companies are planning similar layoffs in California because of the growing insurance crisis.
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