State Farm General Insurance Company®, State Farm’s provider of homeowners insurance in California, just announced it will cease accepting new applications including all business and personal lines property and casualty insurance, effective May 27, 2023. This decision does not impact personal auto insurance. State Farm General Insurance Company made this decision “due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”
Before State Farm’s announcement, the company requested a 28% rate hike on homeowners’ insurance. Instead, the state forced the company to cut rates.
While recent headlines have followed State Farm pulling out of the new homeowners insurance market in the state, Allstate says they paused it last year. “We paused new homeowners, condo and commercial insurance policies in California last year so we can continue to protect current customers,” Brittany Nash, spokesperson for the company, told ABC10 in an email. Allstate had previously filed for a 39.6% increase. In a statement to ABC10 a spokesperson for the California Department of Insurance (CDI) said current customers will not lose their insurance.
State Farm was California’s largest property insurer and Allstate was fourth as of 2021.
The late May decision by State Farm follows a similar call by insurance giant GEICO, which closed all sales centers in the state last year. The Sacramento Bee reported last August that 38 offices are closing and hundreds of GEICO workers are being laid off across the state as a result.
And according to a report by CBS News, from 2020 to 2021, auto insurance losses spiked 25% while premiums increased by only 4.5%, according to the American Property Casualty Insurance Association. The rate and severity of auto accidents are up as well as the costs to cover them.
Progressive stopped advertising in the state. Progressive President and Chief Executive Officer Tricia Griffith said in an earnings call last year that the company was slowing its growth in California. Insurers “are becoming increasingly less willing to write new business” in California because of the moratorium, Joseph Lacher Jr., Kemper’s president, chief executive officer and chairman said during an earnings call last month.
According to an article in the Los Angeles Times, a series of catastrophic wildfires in recent years has increased calls from insurers to weaken the state’s consumer-friendly policies that have held down rates for decades. The insurance crunch is affecting buyers across the state already, even in areas where the wildfire risk is low. In San Francisco, real estate agents say they have seen deals fall through because would-be buyers couldn’t get insured.
And last March, before the State Farm announcement, the Wall Street Journal reported that “Insurance Companies Are Quietly Fleeing California.” It went on to say that the “recent spate of flood-level storms in Northern California brought attention to the Golden State’s ailing levees. As an “atmospheric river” pummeled the low-lying Sacramento region, a nearly endless parade of trucks carrying rubble raced to shore up an aged system.
“The recent floods and wildfire season have also have saddled insurance companies with as much as $1.5 billion in losses. Insurance markets could weather these blows, but California’s government-controlled insurance system won’t let them. Thus, insurers are pulling out of the state or reducing their underwriting, leaving many homeowners dependent on the bare-bones insurer of last resort: the state-created (though insurer-funded) Fair Access to Insurance Requirements Plan.”
Car insurers are backing away, too, Jerry Theodorou, an R Street Institute insurance expert observed in the Orange County Register, notes, as losses increased 25% in one year, while premiums rose only 4.5%. That statistic offers insight into the problem.
In 1988 California voters approved a ballot measure backed by tort lawyers that turned the insurance commissioner into a rate-setting czar. “Proposition 103 . . . requires the ‘prior approval’ of California’s Department of Insurance before insurance companies can implement property and casualty insurance rates,” the department’s website explains. “The ballot measure also required each insurer to ‘roll back’ its rates 20 percent. Prior to Proposition 103, automobile, property and casualty insurance rates were set by insurance companies without approval by the Insurance Commissioner.”
“In the last six years, we lost 20 years’ worth of underwriting profit, and that was due to the catastrophic wildfires that we’ve faced,” said Janet Ruiz, a spokesperson with the Insurance Information Institute.
However, according to a report by Consumer Watchdog, State Farm’s announcement that it would immediately stop selling homeowners insurance to new customers in California is unlawful under Proposition 103, and appears intended to force Insurance Commissioner Ricardo Lara to rubber stamp $721 million in new and potentially unjustified premium hikes State Farm wants its policyholders to pay, Consumer Watchdog said this morning.
Consumer Watchdog warned of damaging consequences for California consumers unless Commissioner Lara orders Illinois-based State Farm – the state’s largest insurance company – to reverse its action and comply with the law, as previous Commissioners have done when insurers break the law.
However the California Insurance Commissioner does not seem to agree with Consumer Watchdog’s interpretation of Proposition 103. Following State Farms announcement, the Insurance Commissioner published a “Consumer Alert” which announced the State Farm decision, and clearly stated “While the California Department of Insurance cannot legally control a company’s business decision, we can help Californians navigate their options.” The Department of Insurance concluded by saying it “continues to proactively outreach to insurance companies to write more business in California so consumers continue to have available coverage options in the face of continued climate change. These discussions are on-going.”