State Farm General Insurance Company has just announced that it is taking strategic steps to secure its future viability within California's insurance market. This involves a series of significant changes affecting a subset of their clientele across the golden state.
Specifically, the company plans to discontinue renewals for around 30,000 policies, including homeowners, rental dwellings, and other property insurance such as those for residential community associations and business owners. Last year the insurer halted new homeowners policies being issued in the state.
State Farm General has also decided to exit the commercial apartment policy sector, affecting an additional 42,000 policies. These measures, slated to begin on July 3, 2024, for the former group and August 20, 2024, for the latter, account for a little more than 2% of the company's total policy count in California.
The decision comes as a result of an exhaustive review of the company's financial stability, which has been adversely affected by various factors including inflation, exposure to natural disasters, increasing reinsurance costs, and outdated regulatory frameworks. The company emphasizes its commitment to upholding its financial responsibilities and legal obligations to customers while ensuring it has sufficient resources to cover claims.
Although State Farm is the largest insurer of homes in the US, it also sported the highest loss ratio in S&P Global’s analysis last year at 99.4%, up from 73.4% the year before, following the Maui wildfires.
In acknowledgment of proposed regulatory changes by the Insurance Commissioner, which include efforts to modernize the rate application process and incorporate considerations for catastrophe modeling and reinsurance in pricing, State Farm General says it is actively engaging with the California Department of Insurance, the Governor's Office, and other stakeholders. The aim, it says, is to foster a regulatory climate that more accurately reflects the risks involved, thereby supporting a more sustainable insurance market in California.
Affected policyholders will be informed ahead of their policy expiration dates, offering guidance on alternative coverage solutions. State Farm's independent agents in California will continue to support policies not subject to these changes. The company's stance on new policy applications, established in May 2023, remains in effect. State Farm General also says that it will remain vigilant and responsive to evolving market conditions, leaving room for further withdrawal from the market as necessary.
Pic: Corey Coyle, This file is licensed under the Creative Commons Attribution 3.0 Unported license.
