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Thousands of California policies won't be renewed by State Farm

State Farm said Wednesday that the company would notify policyholders affected by its most recent decision to non-renew “in advance of their policy expiration to provide information on other coverage options.”

Nearly 72,000 California insurance policies will be dropped by State Farm General later this summer, nearly a year after the Bloomington-based insurance giant announced it would no longer accept homeowner insurance applications in that state.

In a news release Wednesday, the company announced it would not renew about 30,000 homeowner, rental and other property insurance policies beginning July 3. Around 42,000 additional commercial apartment policies will not be renewed beginning Aug. 20. The nonrenewals are specific to California and will occur on a rolling basis once existing policies expire, the release said.

The company reports that those policies represent about 2% of State Farm General’s entire policy base within the state. It is the largest home and auto insurer in the country.

“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 wrote. “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.”

State Farm's move comes after its May 2023 decision to no longer accept homeowner insurance applications. The company cited similar concerns about costs and “rapidly growing catastrophe exposure" in that announcement.

Other companies have made similar moves in the past year, including Farmers Insurance Group, which announced in July 2023 it would cap its homeowner coverage to around 7,000 new policies a month. Also that year, Allstate announced it too would stop writing new homeowner policies.

Regulators respond

The California Department of Insurance (CDI) says State Farm's move "raises serious questions about its financial situation — questions the company must answer to regulators," according to a report from InsuranceJournal.com on Wednesday. CDI has reportedly "been working with State Farm’s home state of Illinois 'to get a full picture of its financial condition and plan for improvement,'" the trade publication reported.

Earlier this month the Insurance Information Institute (III), an industry-funded group with more than 50 company members, released a report detailing a series of factors it says are contributing to challenges within California's insurance market. Those include increasingly destructive wildfires and new flood risks as a result of climate change, as well as the state’s regulatory policies that guide how it assesses risk, pricing and underwriting.

“We also recognize the Insurance Commissioner’s proposed regulatory reforms, such as streamlining the rate application process, accounting for catastrophe modeling and reinsurance costs in rates and addressing FAIR Plan vulnerabilities,” State Farm said in its news release. “We will continue to work constructively with the California Department of Insurance, the Governor’s Office and policy makers to actively pursue these reforms in order to establish an environment in which insurance rates are better aligned with risk.”

While State Farm is the largest home insurer in the country, it also marked the largest loss ratio in 2023, according toS&P Global’s analysis, at 99.4%, up from 73.4%in the prior year. The company cited the wildfires on the island of Maui in Hawaii as causing the surge in losses. State Farm is one of more than 140 insurance industry companies suing utilities and landowners for possible negligence tied to the fire’s cause. Total losses from the fire that killed at least 115 people could range between $4-6 billion, Moody’s said last year.

State Farm said in its update Wednesday that the company would notify policyholders affected by its decision to non-renew “in advance of their policy expiration to provide information on other coverage options.”

Lyndsay Jones is a reporter at WGLT. She joined the station in 2021. You can reach her at lljone3@ilstu.edu.