State Farm said Friday, May 26, that it will stop accepting new applications for personal and commercial property insurance in California, citing rising construction costs and its “rapidly growing catastrophic exposure.” Seen here, a property burns during the LNU Lightning Complex fire in Pope Valley, California, on August 20, 2020. (Max Whittaker/The New York Times)
State Farm said Friday, May 26, that it will stop accepting new applications for property and casualty insurance in California, citing rising construction costs and its “rapidly growing catastrophic exposure.”
The policy change for personal and business lines goes into effect Saturday, May 27, State Farm said. The change does not apply to existing personal auto insurance or homeowners insurance policies in the state.
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In a statement, the company said it would work with the California Department of Insurance to restore its market capacity in the state.
“We take seriously our responsibility to manage risk,” the company wrote. “However, it is necessary to take these steps now to improve the financial strength of the company.”
State Farm owns the majority of property and casualty insurance policies in the US, controls about 9% of the market, and writes at least $70 billion in premiums.
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Michael Soller, a spokesman for the California Department of Insurance, said late Friday via email that State Farm’s policy change was among factors “outside our control, including climate change, reinsurance costs affecting the entire insurance industry and global inflation”.
Instead, the DOI is focusing on “protecting consumers” through its Safer from Wildfires discount program, Soller said.
Established in October 2022 and touted as the first of its kind, the state program requires insurance providers to discount policies for homeowners who mitigate wildfire threats by installing fire-rated roofs, closing eaves and the creation of areas resistant to embers. Insurance companies have 180 days to submit a wildfire risk assessment or score, which the state can appeal.
In recent years, property insurers have dropped coverage for tens of thousands of homeowners across the state in the wake of the devastating wildfires.
DOI Commissioner Ricardo Lara invoked a law in September 2022, signed in 2018 by the then-governor. Jerry Brown: Prohibits insurance providers from canceling or refusing to renew plans for properties affected by wildfires for up to 12 months after the fire.
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A moratorium on insurance price increases during the pandemic only added to the tension within the insurance industry.
“The risks are getting worse and rates are going to have to go up to ensure insurers are solvent and operational in California,” Seren Taylor, a top legislative advocate for the California Personal Insurance Federation, told the Bay Area News Group in August 2022. . .
In 2019, Lara ordered California’s FAIR Plan, an insurance plan of last resort, to expand its coverage beyond fire to include liability, theft and other parts of the homeowner’s policy. Insurance companies, which administer and fund the state-created FAIR Plan, have challenged the new rules in court.
In March of this year, the administrators of the FAIR Plan agreed to double the plan’s commercial coverage limits to $20 million for businesses such as homeowners’ associations that were unable to find insurance through traditional providers.
The number of California properties facing serious wildfire risk is expected to increase sixfold in 30 years, according to the nonprofit First Street Foundation.
The DOI provides updates on consumer rights and choices on its website insurance.ca.gov. Their consumer hotline is 1-800-927-4357.
Staff writer Ethan Varian and CalMatters contributed to this report.