California's home insurance crisis is deepening as its largest private insurer, State Farm, announced it will discontinue coverage for thousands of homeowners starting this summer, the peak of wildfire season.
The Illinois-based insurer issued a press release on Wednesday, writing that it won't renew policies for 30,000 homes and approximately 42,000 commercial apartments in California, which the company says accounts for just over 2 percent of State Farm General's policy count in the state.
Overall, the company accounts for a fifth of the state's home insurance market, which means that its decision to stop thousands of policy renewals is likely to have a dramatic impact on the state's homebuyers and the entire sector—especially as State Farm already announced nine months ago that it would not issue new home policies in the state.
Several private insurers have announced they will stop offering new policies or limit coverage in California, citing rising costs and plunging profits as the risk of more frequent and severe extreme weather events in the state, including devastating wildfires, increases with climate change.
Earlier this month, Texas-based private insurer American National informed the California Department of Insurance that it would have stopped offering homeowner insurance policies by the fall and would have begun sending nonrenewal notices by August. Allstate and Farmers have also paused new policies in the state or set new caps on them.
"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 wrote in a statement released on Wednesday.
"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 said. "It is necessary to take these actions now."
Newsweek reached out to State Farm for comment via email on Friday.
Michael Soller, Deputy Commissioner for Communications at California Department of Insurance, told Newsweek in a written statement on behalf of the department: "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."
Soller continued: "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. In this particular situation, we have 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 announcement comes as California's Insurance Commissioner is proposing regulatory reforms to stabilize the shaky home insurance market in the state. One proposal is to give companies more flexibility to raise their premiums, which State Farm acknowledged but could not change its decision on.
"We 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," State Farm said in its statement.
"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."
State Farm will notify policyholders in advance of their policy expiration, the company said, and they will be given information on other coverage options.
Suddenly facing a growing lack of options, many California homeowners have had to seek a policy with the state's insurer of last resort, the FAIR Plan. The number of FAIR Plan policies has grown by over 25 percent since the end of 2022, adding up to a total of over 350,000 policies now, according to numbers reported by the San Francisco Chronicle.
Are you among the California homeowners who won't have their policy with State Farm renewed starting this summer? Contact g.carbonaro@newsweek.com to share your story.
Correction 3/22/24 11:15 a.m. ET: This story was updated to correct the number of homeowners impacted and the number of policyholders with coverage.
Update, 3/26/24 08:01 a.m. ET: This article was updated to include a comment from CDI Deputy Commissioner for Communications Michael Soller.
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Giulia Carbonaro is a Newsweek Reporter based in London, U.K. Her focus is on U.S. and European politics, global affairs ... Read more
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