State Farm Projects Waive 1 Million California Policies Over Next Five Years – Monterey Herald

State Farm expects the number of policies it writes in California to decline by 1 million by 2028 as the insurance giant struggles financially and withdraws from the Golden State.

Insurer policies for property insurance, including home insurance, could drop from $3.1 million at the end of 2023 to $2 million at the end of 2028, according to a Sept. 10 filing with the California Department of Insurance.

As of May 2023, State Farm has not developed any new policies for homeowners in the state as wildfire risk and rising construction costs have caused a huge increase in the company’s liabilities.

The decline in reporting includes both planned non-renewals and natural losses due to policyholders’ decisions to cancel or change their coverage.

Amy Bach, executive director of United Policyholders, an insurance consumer advocacy group, said it’s possible these projections could change and ultimately result in State Farm increasing the number of policies in the state, especially if the state Department of Insurance implements some of the reforms it has proposed to the market insurance. These include speeding up the review process for insurers seeking rate increases and allowing them to include the anticipated costs of future wildfires and disasters in their rates. Currently, insurers can only price insurance based on historical models, which consumer watchdogs say ensures transparency in their models.

“The insurance commissioner has said he expects the market to reopen in 2025 and that in the new year we will see significantly more insurers willing to write more policies,” Bach said. “So we can see this as more bad news in 2024 and hope that 2025 will be better.”

State Farm is the largest home insurer in California, insuring one in five homes statewide. This year, the company also informed 72,000 policyholders that it would not extend their cover from July.

State Farm did not respond to a request for comment on the projections, but said non-renewals represent just over 2% of State Farm’s policy amount in California.

The company is now asking the California Department of Insurance to approve a plan to increase rates statewide by 30% – after already raising average rates for homeowners by 20% in March – to protect the insurance company from insolvency.

The company may see fewer people canceling policies if the proposed increases don’t turn out to be so steep, said Carmen Balber, executive director of Consumer Watchdog, which follows the insurance industry closely.

“That could change if we can prevent this massive interest rate increase,” she said.

Consumer Watchdog started a petition to end the rate hike, which it called “a $5.2 billion bailout for policyholders over the next four years.” This process is ongoing and there is no timetable for when it will be resolved.

State Farm is just one of many companies limiting insurance coverage in California while raising rates for the policyholders it keeps on its books. In August, state regulators signed off on Allstate’s proposal to increase rates by an average of 34%, affecting 350,000 homeowners, including 70,000 in the Bay Area.

As insurers withdraw from California, more and more people are relying on the state’s insurer of last resort, the FAIR Plan. The number of policyholders covered by the plan, which provides wildfire protection to those who cannot get it elsewhere, grew by more than 20% last year to more than 350,000. The plan’s liability risk increased from $50 billion in 2018 to $336 billion dollars in February 2024, and administrators warn that just one major fire could overwhelm the plan’s resources.

Originally published: September 28, 2024 at 1:52 pm