State Farm Announces Non-Renewal Of 72,000 Insurance Policies In California

In an announcement on Thursday, the largest property and casualty insurance company in California, State Farm Insurance, announced that 30,000 property insurance and 42,000 commercial apartment policies would not be renewed throughout the state, effectively removing 2% of all policies from California.

For over a year, State Farm and other insurance companies have been slowly limiting policies, ending the allowance of new policies, or generally reducing their presence in the state. In 2022, GEICO closed down all 38 of their offices in the state, with State Farm raising driving insurance rates in March of 2023. However, the largest action came in May 2023 when State Farm Insurance announced that they would no longer be accepting new applications for any kind of insurance other than personal vehicle insurance because of large increases in construction costs and inflation. About a week later, it was revealed that Allstate had done the same thing, stopping all new homeowners insurance policies for the last several months. Later in the year, Farmers announced new limits on the number of new homeowner insurance policies it will give each month, with numerous other insurance companies, such as Liberty Mutual, no longer offering certain policies in the state.

Other major insurance limiting factors soon struck the state as well. In August 2023, Farmer’s announced 2,400 layoffs, with nearly all companies raising rates by at least 20% in late 20023 and early 2024, including State Farm. For the companies, the reasons were simple: large increases in construction and reconstruction costs, a rise in crime, inflation, and a largely increased risk of danger because of more wildfires. However, they all avoided removing policies, hoping that the absence of new policies and higher rates would help stabilize the California market.

This didn’t come to fruition this year, as on Thursday State Farm announced that 2% of all their policies in California would not be renewed. According to State Farm, this includes approximately 30,000 homeowners, rental dwelling, and other property insurance policies (residential community association and business owners) as well as 42,000 commercial apartment policies for a total of around 72,000 policies.

“These actions are California-specific and will occur on a rolling basis over the next year, beginning on July 3, 2024, for homeowners, rental dwelling, residential community association and business owners policies and on August 20, 2024, for commercial apartment policies,” said State Farm on Thursday. “This decision was not made lightly and only after careful analysis of State Farm General’s financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations. State Farm General takes seriously our responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws.

“We also recognize the Insurance Commissioner’s proposed regulatory reforms, such as streamlining the rate application process, accounting for catastrophe modeling and reinsurance costs in rates, and addressing FAIR Plan vulnerabilities. We will continue to work constructively with the California Department of Insurance, the Governor’s Office, and policymakers to actively pursue these reforms in order to establish an environment in which insurance rates are better aligned with risk. We will notify customers impacted by this decision in advance of their policy expiration to provide information on other coverage options. State Farm independent contractor agents licensed in California will continue to service policies not impacted by these decisions.”

State Farm to end 72,000 policies in CA

The California Department of Insurance (CDI) added that “One of our roles as the insurance regulator is to hold insurance companies accountable for their words and deeds. State Farm General’s decision today raises serious questions about its financial situation — questions the company must answer to regulators. As state regulators, we deal with companies that are national and multinational in scale. To be effective for Californians, we join forces with other states so we can understand the basis for insurance companies’ decisions and how they plan to recover financially.

“The CDI has been working with State Farm’s home state of Illinois to get a full picture of its financial condition and plan for improvement. We need to be confident in State Farm’s strategy moving forward to live up to its obligations to its California customers.”

While it is not yet known what areas of the state that the non-renewals will be centered in, experts warned the Globe that just like the no new application wave last year, State Farm’s decision could be the starting gun for other companies to not renew more riskier policies.

“This is likely just the start to a bunch of other companies dropping those riskiest policies,” Trevor Connery, a lobbyist who has worked for insurance companies in the past, told the Globe Thursday. “The the companies credit, they could have started to drop policies last year, but opted for other things first to see if things improved over a year. But they didn’t.

“And now they are in a bit of a financial rut it sounds like, and are facing a variety of issues in California. This is still not as bad as other states. Florida, for example, has been seeing all these pull outs and non-renewals on a large scale for awhile now. One company alone there dropped 300,000 last year. The state needs to do everything possible to avoid Florida’s insurance apocalypse right now.

“It will be interesting to know where these policies will be removed from. Will it be rural areas in the Northern part of the state with high wildfire risks? Will it be more urban areas? Are these apartment policies being dropped in big cities. Is it San Francisco? Oakland? We can make some educated guesses here based on trends, but as soon as we find out where, we’ll know more for sure on what the patterns are. This isn’t random.”