Spare the “good neighbor” jokes — for residents with more than 70,000 State Farm home and apartment insurance policies across the state, the insurance market has left them in the lurch.
Illinois-based State Farm General Insurance won’t renew 30,000 property insurance and 42,000 commercial apartment policies across California, Insurance Journal and KTLA5 reported, citing a company announcement.
State Farm, the state’s largest insurer in 2022, said the move would impact 2 percent of its total policies in California and was made to ensure “long-term sustainability.”
The 42,000 apartment non-renewals represent a complete withdrawal from the commercial apartment market in California.
The other 30,000 non-renewals would impact homeowners, rental dwellings and other property insurance policies, according to State Farm.
The announcement only applies to California customers, who will be notified between July 3 and Aug. 20.
“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 said it will continue working with Gov. Gavin Newsom, the California Department of Insurance and other policymakers as they pursue reforms “to establish an environment in which insurance rates are better aligned with risk.”
Last month, the state’s insurance department announced proposals to reform California’s regulations.
The new proposal would allow insurance companies to switch from using historical data to catastrophe modeling, meaning companies would calculate projections of future risk when raising rates and pass on the cost of reinsurance to consumers.
The new changes are expected to take effect at the end of the year.
The California Department of Insurance pointed a finger at State Farm’s finances.
“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 said in a statement.
Last year, 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, have announced similar moves.
This comes as California’s property insurer of last resort told lawmakers that it’s 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, California FAIR Plan President Victoria Roach said in a state legislative hearing.
— Dana Bartholomew