Housing Market

State Farm will not renew more than 70K property policies in California

The carrier is also withdrawing completely from commercial apartment policy offerings in the state

Illinois-based State Farm General Insurance will not renew 72,000 residential property insurance policies in California, the company announced last week. 

The company is withdrawing completely from offering commercial apartment policies — which impact multifamily property owners, not renters insurance policies — in California. It will affect the owners of 42,000 multifamily apartment units as well as 30,000 single-family owner-occupied and rental properties. In all, State Farm will shed about 2% of its policy count in California.

The policy interruptions will take effect on July 3, 2024, for homeowners, rental dwellings, residential community associations, and business owner policies. They will take effect Aug.  20, 2024, for commercial apartment policies. 

“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,” the company said in a statement.

“State Farm General takes seriously our responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws. It is necessary to take these actions now.” 

The insurance carrier will continue to collaborate with Gov. Gavin Newsom, the California Department of Insurance (CDI) and other policymakers as they pursue reforms “to establish an environment in which insurance rates are better aligned with risk.”

In February, the CDI announced several proposals to reform the state’s regulations. These include allowing insurance companies to pivot from using historical data to catastrophe modeling, in order to better project future risk. Currently, the CDI only allows the use of catastrophe models for earthquake losses and fires following earthquakes. These changes could affect insurance rates and how costs are passed on to consumers.

The CDI seemed to point a finger at the carrier’s financials, according to The Insurance Journal.

“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,” CDI spokesman Michael Soller wrote in a statement.

“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.”

According to the statement, 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,” the statement read. 

In May 2023, State Farm announced it would stop accepting new insurance applications for all business and personal property in California. Since then, other insurance companies, including Allstate and The Hartford Financial Services Group, have announced similar moves.

Earlier in March, the state’s property insurer of last resort, the California FAIR Plan, told lawmakers that it was financially unprepared to cover the costs of a major catastrophe in the state. The plan now faces $311 billion in potential losses, up from $50 billion six years ago, President Victoria Roach said during a state legislative hearing.

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