In a move that sent shockwaves through the Golden State, State Farm, California’s leading home insurance provider, recently announced its plan to drop coverage for a staggering 72,000 homes and apartment policies starting this summer.
The decision, which the company says was not made lightly, comes as a result of mounting financial pressures.
State Farm pointed to a perfect storm of factors, including inflation, regulatory costs, and the growing risks associated with catastrophes, as the driving forces behind this drastic measure.
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In a statement released on March 20, the insurer emphasized the need to maintain adequate claims-paying capacity for its customers while complying with financial solvency laws.
The impact of this decision will be felt by approximately 30,000 home policyholders and 42,000 commercial apartment policyholders, representing just over 2% of State Farm’s general policy count in California. However, for those affected, the consequences could be significant.
State Farm discontinuing 72,000 home policies in California in latest blow to state insurance market https://t.co/R4W1F3lAS4
— The Associated Press (@AP) March 22, 2024
This move is just the latest in a series of blows to California property owners, as insurance companies across the state continue to raise rates or pull out of the market entirely.
In fact, State Farm itself announced last year that it would stop accepting new home insurance applications in California due to “historic” increases in construction costs and inflation. Existing customers were then hit with a staggering 20 percent rate hike, according to the San Francisco Chronicle.
State Farm is not alone in its decision to step back from the California market.
Insurance giant AllState also paused its sales of new home insurance policies in 2022 due to wildfires and higher costs of doing business in the state.
According to KCRA, seven of the 12 largest insurance groups in California have either paused or restricted new homeowner policies in the past year.
As private insurance companies refuse to issue new policies to homeowners with sky-high premiums and in “risky areas,” many Californians are turning to state-run insurance programs like the “FAIR Plan.” However, even this option, deemed the state’s “insurer of last resort” comes with a hefty price tag.