On Wednesday March 20th, State Farm Insurance announced they will cancel 30,000 homeowners insurance policies in California beginning on July 3, 2024. In addition, it will also end its apartment insurance program in the state, terminating the 42,000 apartment insurance policies currently on its books.
State Farm Insurance, based in Chicago, IL, is the largest insurer in the United States and currently insures approximately twenty percent of California’s risk. The newly announced terminations account for just over 2% of the company’s policyholders in California.
Context:
State Farm ceased writing new property insurance in California last May. The move was intended to pause business while it attempted to get rate increases approved by the California Department of Insurance. Unfortunately, negotiations have not gone well over the past ten months, and relations between the insurance giant and state regulators have deteriorated.
State Farm had applied for a 38.7% increase on its apartment portfolio, but the Department of Insurance only approved a 23% increase. The Department of Insurance only granted a 20% increase to their home insurance premiums.
While their increase requests and approvals may seem extreme, it’s important to note that State Farm had a total loss of $14 Billion in 2023.In plain speak: State Farm lost $1.17 for every dollar it took in in 2023.
“This decision was not made lightly and only after careful analysis of State Farm General’s financial health,” the company said in a March 20 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 California Department of Insurance, in a somewhat contentious tone, said the move raises questions about State Farm’s financial health.“One of our roles as the insurance regulator is to hold insurance companies accountable for their words and deeds,” said Deputy Insurance Commissioner Michael Soller. “State Farm General’s decision today raises serious questions about its financial situation — questions the company must answer to regulators. … We need to be confident in State Farm’s strategy moving forward to live up to its obligations to its California customers.”
We wrote in 2018 that trouble was brewing. What was anticipated then, has come to pass and been exasperated by the Covid pandemic, inflation, and aproblematic Department of Insurance. State Farm is far from alone in their actions. Insurance companies are rapidly reducing, or eliminating, their footprint in California.
State Farm, Farmers, Allstate, Geico, and other “captive” clients would be better served trusting an independent broker such as Old Harbor. Though the times our tough, we are proud to be still offering our clients multiple options for their homes throughout California.
