State Farm, California’s largest insurer, announced that it will discontinue coverage for 72,000 homes and apartments starting this summer, a move likely to sharply inflate housing costs for affected residents in a state that’s reeling from a series of destructive recent wildfires.
The Illinois-based insurance giant, which accounts for a fifth of the California home insurance market and is the largest property and auto insurer in the U.S., cited rising costs, increasing catastrophe risk and outdated regulations in declaring it won’t renew California policies for 30,000 homes and 42,000 apartments.
“This decision was not made lightly and only after careful analysis of State Farm General’s financial health,” the company said in a March 20 statement. “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.”
The announcement comes less than a year after State Farm announced it would not issue new policies in California, citing similar concerns. And it comes as the state’s elected insurance commissioner embarks on a yearlong overhaul of home insurance regulations aimed at calming California’s imploding market by giving insurers more latitude to raise premiums while extracting commitments from them to extend coverage in fire-risk areas.
“One of our roles as the insurance regulator is to hold insurance companies accountable for their words and deeds,” said Deputy Insurance Commissioner Michael Soller. “State Farm General’s decision today raises serious questions about its financial situation — questions the company must answer to regulators. … We need to be confident in State Farm’s strategy moving forward to live up to its obligations to its California customers.” But it was unclear whether the department would launch an investigation into State Farm’s move.
Harvey Rosenfield, the Consumer Watchdog founder who authored the state’s insurance regulation system approved by voters in 1988’s Proposition 103, said the company’s announcement comes just after the state Department of Insurance approved a 20% premium increase for the company. That approval was based on State Farm’s existing number of policy holders, and he said the state should take another look at the rate hike considering the new cancellations.
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