State Farm to Drop 72,000 Home, Landlord Policies in California

California’s home insurance market took another hit on March 20, when State Farm, the largest home insurer in the state, announced it won’t renew about 30,000 homeowners policies and 42,000 landlord policies beginning July 3.

State Farm stopped writing new home policies in California in May 2023.

“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 insurer said in a statement announcing its decision.

Affected policies

State Farm’s decision affects about 72,000 policyholders:

• 30,000 homeowners, rental dwelling, residential community association, and business owners policies won’t be renewed, beginning July 3.

• 42,000 commercial apartment policies, which cover apartment owners, won’t be renewed, starting Aug. 20.

The affected policies represent slightly more than 2% of State Farm’s total policy count in the state, the company said.

In 2022, State Farm wrote nearly $2.5 billion in homeowners insurance in California, according to the most recent data available from the state’s Department of Insurance. The company incurred losses of more than $1.2 billion in the state and ended the year with a loss ratio of nearly 53%. Loss ratio compares total premiums a company earns in a year to the claims it paid and its other expenses. The lower its loss ratio, the more profitable an insurer is.

Current state of California’s home insurance market

In 2023, seven of the 12 largest home insurers in California either limited new business in the state or exited the California market altogether. Inflation, climate change, wildfires, and conflict with lawmakers contributed to insurers’ decisions.

Restrictions and withdrawals by insurers have made it increasingly difficult for California homeowners to find affordable coverage. In 2021, the average cost of home insurance for a $200,000 property in the state was $972 per year, Insurify data shows. In 2023, the annual average was $1,056.

California is prone to natural disasters that result in insurance claims, including earthquakes, wildfires, and flooding. Insurers say these disaster risks and state insurance regulations make it difficult to sustain profitability in the state.

What’s next

State Farm will continue to sell rental insurance and auto insurance in California.

Meanwhile, Insurance Commissioner Ricardo Lara and the Department of Insurance have been working to revise state regulations to improve the availability of homeowners coverage in California. Just six days before State Farm announced its reduction in home policies, Lara issued a statement on the state’s Sustainable Insurance Strategy.

In the latest phase of the plan to shore up the state’s home insurance marketplace, Lara addressed insurers’ use of catastrophe modeling in setting insurance rates. Rules that have been in place for over three decades allowed insurance companies to use historical wildfire data in their rate modeling, the department said. But historical data doesn’t take into account modern mitigation efforts by local, state, and the federal governments.

“Under outdated rules, the growth of climate-driven mega fires has supercharged insurance costs for many Californians while making insurance harder to find,” Lara said. “We can no longer look solely to the past as a guide to the future. My strategy will help modernize our marketplace, restoring options for consumers while safeguarding the independent, transparent review of rate filings by Department of Insurance experts, which is a bedrock principle of California law.”