State Farm to Drop 72,000 Homeowners Policies in California

Last week State Farm said it is taking some big steps to stabilize its viability in California. The company said it is going to discontinue renewals for 30,000 homeowners policies.

That not only means homeowners but includes rentals, renters and others like residential community associations and business owners.

State Farm is also leaving the commercial apartment sector and that will affect 42,000 policies. So the total number of policies affected is 72,000 and the changes will go into effect starting July 3rd for the 30,000 and August 20th for the 42,000 policies. While 72,000 sounds like a huge number, it is only 2% of State Farm’s California policies.

All of this in addition to the notification it made to the California Department of Insurance that it will no longer write new homeowners policies in California.

“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 State Farm news release said. “It is  necessary to take the action now.”

State Farm did — however — acknowledge the proposed regulation changes proposed by California Insurance Commissioner Ricardo Lara and said it is interested in working with the commissioner to fix California’s outdate regulatory system, and regularly communicates with his office.

The commissioner is pushing for ways to modernize the rate application process that insurers need to use to get rate increases approved.

Part of the modernization involves the use of catastrophe models to set rates. Currently, the only catastrophe model allowed to set rates is for earthquake insurance and fire that follows one. Lara is proposing to add wildfire, terrorism and flood insurance to allowable catastrophe models.

Lara — in the meantime — says he’d love to see State Farm’s books because this cut “raises serious questions about its financial situation — questions the company must answer to regulators,” Lara said. “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. We need to be confident in State Farm’s strategy moving forward to live up to its obligations to its California customers.”

He made that comment in an interview with KABC and called California’s current problems a real crisis.

“Insurance companies are not like utility companies. By law, they don’t have to be here, and when we try to overregulate, we’ll see what happened after the Northridge earthquake, when the legislature came in and tried to overregulate, and they no longer write earthquake insurance in California,” Lara said.

The commissioner’s proposals to modify California’s insurance reforming Proposition 103 aren’t being met with much applause by Harvey Rosenfield of Consumer Watchdog. He is the author of the law passed by the voters in 1988.

“The reality is that the insurance industry has been trying to escape Prop 103 since the voters kicked their ass in 1988,” Rosenfield said. “All of this is designed to restore to the insurance industry through Commissioner Ricardo Lara what [it] lost at the ballot box…a system in which there is no accountability, no public review, oversight or control of insurance rates or premiums or discriminatory practices.”

Lara disagrees and says Proposition 103 is outdated and his Sustainable Insurance Strategy will address what he calls long neglected rules.

“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.”

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