State Farm non-renewing 72,000 home insurance policies in California

State Farm, California’s largest insurer, announced it will discontinue coverage for 72,000 homes and apartments starting this summer, a move likely to sharply inflate housing costs for affected residents in a state that’s reeling from a series of destructive recent wildfires.

The Illinois-based insurance giant, which accounts for a fifth of the California home insurance market and is the largest property and auto insurer in the U.S., cited rising costs, increasing catastrophe risk, and outdated regulations as reasons it won’t renew California policies for 30,000 homes and 42,000 apartments.

The announcement comes less than a year after State Farm announced it would not issue new policies in California citing “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market” that helps insurers absorb losses.

And it comes as the state’s elected insurance commissioner embarks on a yearlong overhaul of home insurance regulations aimed at calming California’s imploding market by giving insurers more latitude to raise premiums while extracting commitments from them to extend coverage in fire-risk areas.

The California Department of Insurance said the move raises questions about State Farm’s financial health.

State Farm said the pending coverage cancellations account for just over 2% of its California policies but did not say where they are and what criteria the company used to mark them for non-renewal.

Property owners who lose their coverage almost certainly will be left with no option but the California FAIR Plan. The state-created private insurance pool provides minimal last-resort coverage that can cost much more than a standard policy.

Dependence on the FAIR plan has soared as many of California’s largest home insurers began limiting coverage in recent years after a series of destructive wildfires that followed a prolonged drought — 14 of the state’s 20 most destructive wildfires on record occurred in the last 10 years.

The number of FAIR Plan policies has more than doubled in five years, from 154,494 in September 2019 to 339,044 in December 2023. Total liability exposure topped $311 billion in 2023 compared to $112 billion in 2019.

State Farm said non-renewals would roll out starting July 3 for home, business and rental dwelling policies and August 20 for commercial apartments.

Call us with any questions or concerns you may have regarding these challenging times. We are here for all of your insurance needs!

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