The largest insurer pulls out of the largest market citing “catastrophic exposure.”
State Farm has announced that it will no longer accept new applications for property and casualty coverage in California, citing the increasing “catastrophic exposure” in the Golden State, which has averaged 7,000 wildfires spanning more than 2 million acres in each of the last five years.
“State Farm General Insurance Co. made this decision due to historic increases in construction costs that are outpacing inflation, rapidly growing catastrophe exposure and a challenging reinsurance market,” the Bloomington-based insurance giant said, IN, in a statement posted on its website.
State Farm said it stopped accepting new applications for all commercial and personal lines of property and casualty insurance effective May 27. Personal auto insurance policies in California are not affected, the company said.
According to a statement issued by a California Department of Insurance (CDI) spokesperson, “it is important to note that current State Farm customers are not affected and no renewals are being issued as a result of this announcement.”
In October, California became the first state in the nation to enact insurance pricing regulations requiring insurance companies to provide discounts to consumers under the Safer from Wildfires framework created by the Department of Insurance in partnership with state agencies. emergency preparedness.
In its statement, State Farm acknowledged California’s new requirement linking wildfire loss mitigation efforts to insurance discounts and said it would “work constructively with CDI and legislators to help build market capacity in California”.
While it didn’t point a finger directly at the new regulations as the reason for its departure from policymaking in California, State Farm said it would have to improve its results before re-entering the market.
“It is necessary to take these actions now to improve the financial strength of the company. We will continue to evaluate our approach based on changing market conditions,” the company statement said.
Insurers have increasingly resorted to “non-renewal” or discontinuation of coverage for the policyholder’s property in California. Approximately 13% of all voluntary homeowners and home fire policies were not renewed by insurance companies in 2021, Bloomberg informed.
Wealthy homeowners aren’t exempt from cancellations: Last year, one of the biggest companies offering protection for multi-million dollar properties ended coverage for some clients.
AIG notified some 9,000 clients in its Private Client Group in January 2022 that their homeowners policies would not be renewed this year. The change is part of a plan by AIG to stop selling homeowners policies in California through a unit regulated by the state’s insurance department.
There have been 985 responses to wildfire incidents in California since the beginning of 2023, as well as nearly 20,000 responses to other fires, according to state data.
