State Farm has stopped selling new homeowners insurance policies in California, effective Saturday, over concerns about destructive wildfires and the rising cost of construction.
In a statement, the Bloomington-based insurer said it made this decision “due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.” The move by State Farm General Insurance Company does not impact personal auto insurance in California or any existing customers.
“We take seriously our responsibility to manage risk. We recognize the Governor’s administration, legislators, and the California Department of Insurance (CDI) for their wildfire loss mitigation efforts,” State Farm said in a statement. “We pledge to work constructively with the CDI and policymakers to help build market capacity in California. However, it’s necessary to take these actions now to improve the company’s financial strength. We will continue to evaluate our approach based on changing market conditions.”
State Farm took a record $13.2 billion in underwriting losses in 2022 – in part because of costlier auto insurance claims driven by inflation. It paid $7 billion in catastrophic loss claims.
This is not the first time that a state’s catastrophe exposure led to a big change for State Farm. In 2009 State Farm notified officials in Florida that it planned to stop selling property insurance in the hurricane-prone state, after reportedly losing $20 million a month. Ultimately, State Farm reached a deal with state officials to remain in Florida, while dropping some policies and raising rates.
According to the Insurance Information Institute, State Farm was the leading company offering home insurance in California.
