State Farm will not renew more than 70K property policies in California

Key Takeaways:

– State Farm General Insurance will not renew 30,000 residential property insurance policies and 42,000 commercial apartment policies in California
– The company is completely withdrawing from offering commercial apartment policies in California
– The policy interruptions will take effect on July 3, 2024, for homeowners, rental dwellings, residential community associations, and business owner policies, and on August 20, 2024, for commercial apartment policies
– The decision was made due to financial health, impacted by inflation, catastrophe exposure, reinsurance costs, and outdated insurance regulations
– State Farm General will work with policymakers to establish an environment with better-aligned insurance rates and risk
– The California Department of Insurance has proposed reforms to allow better projection of future risk and to hold insurance companies accountable
– CDI is working with State Farm’s home state of Illinois to understand the carrier’s financial condition and improvement plan
– Other insurance companies, including Allstate and The Hartford Financial Services Group, have announced similar moves in California
– The California FAIR Plan is financially unprepared to cover potential losses from a major catastrophe in the state

HousingWire:

Illinois-based State Farm General Insurance will not renew 30,000 residential property insurance policies in California, as well as 42,000 commercial apartment policies in the state, the company announced last week. 

The company is withdrawing completely from offering commercial apartment policies — which impact multifamily property owners, not renters insurance policies — in California. Combined, the policies to be eliminated represent about 2% of State Farm General’s policy count in California.

The policy interruptions will take effect on July 3, 2024, for homeowners, rental dwellings, residential community associations, and business owner policies. They will take effect Aug.  20, 2024, for commercial apartment policies. 

“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,” the company said in a statement.

“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 is necessary to take these actions now.” 

The insurance carrier will continue to collaborate with Gov. Gavin Newsom, the California Department of Insurance (CDI) and other policymakers as they pursue reforms “to establish an environment in which insurance rates are better aligned with risk.”

In February, the CDI announced several proposals to reform the state’s regulations. These include allowing insurance companies to pivot from using historical data to catastrophe modeling, in order to better project future risk. Currently, the CDI only allows the use of catastrophe models for earthquake losses and fires following earthquakes. These changes could affect insurance rates and how costs are passed on to consumers.

The CDI seemed to point a finger at the carrier’s financials, according to The Insurance Journal.

“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,” CDI spokesman Michael Soller wrote in a statement.

“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.”

According to the statement, the CDI has 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 statement read. 

In May 2023, State Farm announced it would stop accepting new insurance applications for all business and personal property in California. Since then, other insurance companies, including Allstate and The Hartford Financial Services Group, have announced similar moves.

Earlier in March, the state’s property insurer of last resort, the California FAIR Plan, told lawmakers that it was financially unprepared to cover the costs of a major catastrophe in the state. The plan now faces $311 billion in potential losses, up from $50 billion six years ago, President Victoria Roach said during a state legislative hearing.

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Property Chomp’s Take:

tags in HTML are used to create divisions or sections within a webpage. They are versatile and can be used to structure content, apply styles, and group elements together. In the case of State Farm General Insurance’s recent decision to not renew thousands of insurance policies in California, we can see how important it is for companies to carefully analyze their financial health and make tough decisions.

State Farm General’s announcement to withdraw from offering certain insurance policies in California reflects the challenges that insurance companies face in a constantly changing environment. Factors such as inflation, catastrophe exposure, reinsurance costs, and outdated regulations can all impact an insurance carrier’s ability to provide coverage.

It’s interesting to note that the California Department of Insurance has proposed reforms to the state’s regulations, which could potentially change how insurance rates are determined and how costs are passed on to consumers. This highlights the importance of collaboration between insurance companies, regulators, and policymakers to ensure a fair and stable insurance market.

The decision by State Farm General to not renew certain policies may raise questions about the company’s financial situation, but it also underscores the need for transparency and accountability in the insurance industry. As regulators work to understand the basis for insurance companies’ decisions and ensure they can meet their obligations to customers, it’s clear that a balance must be struck between profitability and consumer protection.

Overall, the evolving landscape of the insurance market in California serves as a reminder of the complex factors at play in the industry. By staying informed and engaged with regulatory developments, both insurers and policyholders can navigate these changes more effectively.