State Farm Won’t Renew Coverage For 72,000 Customers In California

State Farm, California's largest private insurance provider, will not renew coverage for around 30,000 homes and 42,000 apartments in California beginning July 3.

The announcement came after the company raised homeowner insurance rates in the state last week by 20%. The company paused issuing new homeowner policies in 2022.

State Farm did not confirm how many of those homes and apartments are in Southern California, but said the decision was driven by “inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations.”

Deputy Insurance Commissioner Michael Soller told LAist in a statement that State Farm will have to “answer to regulators,” particularly about the company’s financial standings.

“We have been working with State Farm’s home state of Illinois to get a full picture of its financial condition and plan for improvement,” Soller said. “We need to be confident in State Farm’s strategy moving forward to live up to its obligations to its California customers.”

Insurance reforms in the state

California is in the midst of insurance reform, with state Insurance Commissioner Ricardo Lara announcing last year that companies doing business in the state can use future forecasts, including climate risk predictions, to write new policies. Companies are also now able to build California-only reinsurance costs into their prices. Reinsurance is when insurance companies buy insurance to cover the plans they’ve sold. (Yes, insurance to cover insurance plans.)

And last week, Lara unveiled a plan to allow insurers to use computer models of disasters to determine rate increases. The state previously allowed insurers to use the catastrophe models for earthquakes and fires after an earthquake; the new change now includes disasters such as wildfires, terrorism and floods. In California, prior to Lara’s latest announcement, insurers could only use historical data on wildfires and other calamities for rate hikes.

What could this mean for California homeowners

Carmen Balber, executive director of Consumer Watchdog, called State Farm’s decision “an outrage” and “a real hardship for California consumers.”

She said the state’s insurance reforms favor insurance companies “without a guarantee that a single new homeowner will get access to coverage in California.”

“It's very clear that giving the insurance industry everything they want, in the hopes we can entice them back, is a failed solution,” Balber said.

She urged the state to mandate that insurers cover homeowners who take state approved steps to protect their homes from fires.

What can affected customers do

Balber advised affected customers to shop around “to find a good insurance broker who will work for you to try to find a company with other coverage.”

As a last resort, Balber said, there is the FAIR plan, the state insurance plan, “a low benefit policy that costs a lot more than a standard policy and covers very little.”

The state Department of Insurance will have experts available to help those impacted by the coverage loss. Customers can call (800) 927-4357, or visit insurance.ca.gov.