State Farm will discontinue coverage for 72,000 houses and apartments in California starting this summer, the insurance giant said this week, nine months after announcing it would not issue new home policies in the state.
The Illinois-based company, California’s largest insurer, cited soaring costs, the increasing risk of catastrophes like wildfires and outdated regulations as reasons it won’t renew the policies on 30,000 houses and 42,000 apartments, the Bay Area News Group reported Thursday.
“This decision was not made lightly and only after careful analysis of State Farm General’s financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations,” the company said in a statement Wednesday.
“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 continued. “It is necessary to take these actions now.”
The move comes as California’s elected insurance commissioner undertakes a yearlong overhaul of home insurance regulations aimed at calming the state’s imploding market by giving insurers more latitude to raise premiums while extracting commitments from them to extend coverage in fire-risk areas, the news group said.
The California Department of Insurance said State Farm will have to answer question from regulators about its decision to discontinue coverage.
“One of our roles as the insurance regulator is to hold insurance companies accountable for their words and deeds,” Deputy Insurance Commissioner Michael Soller said. “We need to be confident in State Farm’s strategy moving forward to live up to its obligations to its California customers.”
It was unclear whether the department would launch an investigation.
Last June, State Farm said it would stop accepting applications for all business and personal lines of property and casualty insurance, citing inflation, a challenging reinsurance market and “rapidly growing catastrophe exposure.”
The company said the newly announced cancellations account for just over 2% of its California policies. It did not say where they are located or what criteria it used to determine that they would not be renewed.