State Farm said Friday, May 26, it will stop accepting new applications for personal and business property insurance in California, citing rising construction costs and “rapidly growing catastrophe exposure.” Seen here, a building burns during the LNU Lightning Complex Fire in Pope Valley, California, August 20, 2020 (Max Whittaker/The New York Times)
State Farm said Friday, May 26, it will stop accepting new applications for property and casualty insurance in California, citing rising construction costs and “rapidly growing catastrophe exposure.”
The policy change for personal and business lines is effective Saturday, May 27, State Farm said. The change does not apply to personal auto insurance policies or existing home 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 our responsibility to manage risk seriously,” the company wrote. “However, it is necessary to take these measures now to improve the company’s financial strength.”
State Farm has the largest share of property and casualty insurance in the US, controlling about 8.3% of the California market, accounting for at least $7 billion in premiums, according to 2021 data collected by the state.
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Michael Soller, spokesman for California’s Department of Insurance, said via email Friday night 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 rebate program, Soller said.
The state program, established in October 2022 and touted as a first of its kind, requires insurance companies to discount policies for property owners that reduce wildfire threats by installing fire-resistant roofs, enclosing eaves and creating ember-resistant zones. Insurance companies have 180 days to submit a wildfire risk assessment or score, which the state can appeal.
Real estate insurers have covered tens of thousands of homeowners across the state in the wake of devastating wildfires in recent years.
DOI Commissioner Ricardo Lara invoked a law in September 2022 – signed in 2018 by the then government. Jerry Brown – prohibits insurance companies from canceling or denying plans for wildfire-affected property until 12 months after the fire.
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A moratorium on insurance price hikes during the pandemic only increased tension within the insurance industry.
“The risks are getting worse and rates are going to have to go up to make sure insurers are solvent and operational in California,” Seren Taylor, a senior legislative advocate with the Personal Insurance Federation of California, told the Bay Area News Group in August 2022 . .
Lara commissioned California’s FAIR Plan, an insurance plan of last resort, in 2019 to expand coverage beyond fire to include liability, theft and other portions of a homeowner’s policy. Insurance companies, which manage and fund the state-created FAIR plan, have challenged the newer rules in court.
In March of this year, FAIR Plan administrators agreed to double the plan’s commercial coverage limits to $20 million for businesses such as homeowners’ associations that couldn’t find insurance through traditional providers.
According to the nonprofit First Street Foundation, the number of California properties at serious wildfire risk will increase sixfold in 30 years.
The DOI provides updates on consumer rights and options on its insurance.ca.gov website. The consumer hotline is 1-800-927-4357.
Staff writer Ethan Varian and CalMatters contributed to this report.