State Farm Nonrenewing California Homeowners
Dana Coates
Strategic Partnerships

On March 20, 2024, State Farm General Insurance Company disclosed plans to not renew 30,000 policies in California, encompassing homeowners, rental properties, and other forms of property insurance.

State Farm had previously, in May of the prior year, halted new property and casualty insurance applications within the state, citing escalated wildfire risks and inflationary pressures as key reasons. This move mirrored an earlier decision by Allstate Corp.

The company's website features a notice explaining its focus on securing its future operations in California. This has led to making challenging yet essential decisions affecting a certain number of their state policyholders.

Beyond the decision to not renew 30,000 policies related to homeowners, rental units, residential community associations, and business owners, State Farm also intends to exit the commercial apartment insurance segment. This will involve the non-renewal of an estimated 42,000 policies in this category.

These steps are tailored specifically for the California market and will be phased in over the next twelve months. The timeline commences on July 3, 2024, for the homeowners, rental units, residential community associations, and business owners' policies, and on August 20, 2024, for the commercial apartment policies. This represents about 2% of State Farm General's policy volume in the state.

The California Department of Insurance has voiced concerns regarding State Farm's financial health in light of these announcements.

The regulatory body stressed its responsibility to ensure that insurance companies stand by their commitments. It raised questions about State Farm General's financial condition that the insurer needs to address. Efforts are underway in collaboration with regulators in Illinois, where State Farm is headquartered, to fully understand the insurer's financial status and recovery strategies.

State Farm asserts that the decision to not renew certain policies was reached following an in-depth review of its financial stability. The insurer points to challenges such as inflation, catastrophic risk exposure, reinsurance costs, and outdated regulatory frameworks as contributing factors. The company emphasized its commitment to maintaining sufficient capacity to cover claims and to adhere to financial solvency regulations, necessitating these measures.

This announcement comes at a time when California's insurer of last resort has indicated to lawmakers its inadequate financial preparation for a significant catastrophe. The FAIR Plan now confronts potential losses of $311 billion, a significant jump from $50 billion six years prior.

Other insurers like The Hartford and Liberty Mutual have made adjustments to their offerings in California in light of similar concerns. Additionally, Farmers Insurance has implemented restrictions on new homeowners insurance policies in the state due to these challenges.

The increase in wildfire incidents in California in recent years has been notable, with eight of the state's top 20 wildfires occurring in the last six years, excluding the massive Camp Fire in 2018.

State Farm has committed to notifying affected customers ahead of their policy expirations and mentioned that independent agents in California will continue to service policies that are not affected by these decisions.