Sacramento, Calif. — State Farm is set to end coverage for 72,000 houses and apartments in California starting this summer, the insurance giant announced this week, following its previous decision not to issue new home policies in the state.
The company, based in Illinois and California's largest insurer, pointed to rising costs and the growing threat of disasters such as wildfires as reasons for the change.
"This decision was not taken lightly and was made after a thorough assessment of State Farm General's financial situation, which continues to be affected by inflation, exposure to catastrophes, reinsurance expenses, and the constraints of operating under decades-old insurance laws," the company stated on Wednesday.
"State Farm General is committed to ensuring that we have sufficient funds to cover claims for our policyholders and to abide by relevant financial stability regulations. These measures are necessary at this time."
This development coincides with the California insurance commissioner's efforts to revamp home insurance regulations over the course of a year, with the goal of stabilizing the state's struggling market by granting insurers more flexibility to raise rates while securing commitments from them to provide coverage in high-risk fire zones, as reported by the news outlet.
State Farm Faces Scrutiny Over Decision to Discontinue Coverage
The California Department of Insurance has raised concerns and demanded answers from State Farm regarding its recent announcement to discontinue coverage. Deputy Insurance Commissioner Michael Soller emphasized the importance of holding insurance companies accountable for their actions and ensuring they fulfill their obligations to customers in California.
While the department has not confirmed whether an investigation will be launched, State Farm's decision last June to stop accepting applications for property and casualty insurance lines has sparked regulatory attention. The company cited reasons such as inflation, challenges in the reinsurance market, and increasing catastrophe exposure.
State Farm clarified that the recent cancellations affect slightly more than 2% of its policies in California. However, specific details about the location of these policies and the criteria used for non-renewal were not disclosed.
