State Farm announced that it will discontinue coverage for 72,000 houses and apartments in California due to soaring costs, increased risks of catastrophes like wildfires, and outdated regulations. This decision comes nine months after the company declared that it would not issue new home policies in the state. State Farm, California’s largest insurer, stated that the financial health of State Farm General is being impacted by inflation, catastrophe exposure, reinsurance costs, and limitations within decades-old insurance regulations.
As the California Department of Insurance undertakes a yearlong overhaul of home insurance regulations, aiming to stabilize the state’s imploding market, State Farm’s move is under scrutiny. The insurance commissioner seeks to give insurers more flexibility to raise premiums while ensuring coverage in fire-risk areas. State Farm will have to provide answers to regulators regarding its choice to discontinue coverage for the affected properties. Individuals like Deputy Insurance Commissioner Michael Soller emphasize the importance of holding insurance companies accountable for their actions and fulfilling their obligations to customers, with the possibility of an investigation by the department looming.
With State Farm’s announcement of discontinuing coverage for just over 2% of its California policies, concerns arise regarding the locations of the affected properties and the criteria used for non-renewal decisions. The company previously stopped accepting applications for all business and personal lines of property and casualty insurance, citing various challenges in the insurance market. As State Farm navigates its financial challenges amidst a changing landscape, it faces the regulatory scrutiny of California’s insurance department and the responsibility of maintaining adequate claims-paying capacity for its customers.