May 27, 2023
State Farm Stops Writing Home Insurance in the Bay Area [and the rest of California]
State Farm and its various mutual entities have long held out as the sole admitted insurer writing new policies in much of California. As of today – May 27th, 2023 – this is no longer true. According to numerous publications including the Wall Street Journal, Sac Bee, Fox Business, and many more – State Farm will no longer write home insurance in California, at least for the time being.
The State Farm “Newsroom” site states They “made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.” This site has discussed recently the challenges of insurance inflation and the problem is it is creating.
This means that State Farm will no longer be “accepting new applications including all business and personal lines property and casualty insurance, ” as it relates to the state of California. The situation is unclear for those that have unboud quotes that were provided to them.
Marindependent Insurance Services LLC has no relationship with State Farm what so ever. We are not appointed with them and simply offer insurance products that often compete with them.
Three Main Reasons State Farm Leaving CA Home Market:
As laid out- there are three main reasons that State Farm Spells out for them halting issuance of new policies:
- Reinsurance
- Inflation
- Growing Catastrophe Exposure
Reinsurance is a type of insurance that insurers must carry. It would be difficult to fully explain this subject without getting into an overly complicated subject. From a consumers standpoint though- reinsurance is an expense that insurers need to pay. This line item of expense has been going through the roof. Historical rate increases year over year. In general reinsurance rates are not regulated by the state but insurance premiums offered to consumers in California are.
Inflation – is the increased costs of goods and services. In the last two years – inflation has been going up. As its relates to auto insurance – cars are costing more. More to replace them, more to fix them. The same is also true of houses. Tried hiring a laborer lately? Good luck.
The Growing Catastrophe Exposure is a complex term for large destructive risks. In California that is Floods, Earthquakes, and now Wildfires. Floods are typically expluded from home insurance, while Earthquakes are mostly excluded also [ although there is a small exception to this regarding fires started from earthquakes in CA.] That leaves wildfires, which has long been a challenge in this state.
All of these three problems are part of the Nightmare insurance situation present in this state [and beyond], as we wrote in a previous article about the Parlous nature of the personal lines insurance marketplace previously. At that time I had stated that “the California homeowners market is just a disaster.”
Now the California insurance market is in a larger state of disaster for certain. Hopefully time will heal this wound. One cause not stated, that may be more of a wink of the eye, is the regulatory landscape in the state of California. California is unusual in that insurers need approval to raise consumers insurance premiums. Additionally the modeling tools allowed are often not considered as broad as other tools used in other states. There is ample evidence of this being a major issue in the state.
What is the Real Reason that State Farm is Not Writing Home Insurance in the San Francisco Bay Area:
In our opinion – State Farm has stopped writing home and property insurance because of wildfires. The wildfire risk has become so extreme and costly that it is now a major problem for all insurers. One could easily make the argument that both of the other two reasons are closely tied to Wildfires. And the regulatory reason that we provided is back end portion of this challenge.
During the last three years Home Insurance companies have been leaving the state of California. Merced Property & Casualty Co. fell victim to wildfire claims and the insurer was liquidated by the state. This changed the way many insurers saw the risk of wildfires. One by One, insurers have been either issuing nonrenewals, such as AIG, or halting new home insurance policies.
The pool of home insurers that this office can use has dwindled from about 40 to just a handfull. And the handfull of options now available are not great. In fact the number one type of insurance now written by insurance agents is likely to be the California FAIR plan, an insurer of last resort, A FAIR plan paired with a DIC is a decent, yet expensive subsitute for homeowners.
With all of the insurers issuing nonrenewals, halting new home insurance – one insurer has stood out as still writing new policies – State Farm. This agency sent dozens, hundreds of consumers to State Farm to get home insurance. I mean why propose an $8,000 policy when they can get a better one down the street for $3,000. Yes State Farm may never have written the best policy – but it was still an admitted one.
Most insurance agents then – knew that it was just a matter of time until something like this happened. Either a large destructive fire destroyed their balance sheet or a they woke up and realized that they were all alone taking in multimillion dollar homes in the state. Well – that time has come. What is next? The future concerning State Farm Insurance is unknown.
Will State Farm Come Back into the Home Insurance Market?
State Farm may indeed come back into the home insurance market – but they are the best people to answer that question. Contact a State Farm agent today to inquire. Send them an email. Call their 1-800 number.
Will my current State Farm policy be Nonrenewed?
Based on the press release and reporting on the subject at the present momement there is no reason to think that. However in regards to State Farm homeowners nonrenewals – only time will tell. Read and open all mail from your insurer. One note here is that if you are with State Farm it cannot hurt to make sure you pay your renewal bill on time each and every year. Since they are not writing new policies this may become a problem is a payment is missed and the policy has to be recreated. Not saying it will but I am saying it “could be a problem.”
How Do I Get Home Insurance Now that State Farm is not Writing?
There are now, in our opinion, few good homeower options for much of the state. For those in the safest of areas – there is still a vibrant market for home insurance. For those that are in the worst of the wildfire zones, State Farm was not writing those previously – so no change.
But for those in the fringes in suburbia, much of Contra Costa, Alameda, San Mateo, Santa Cruz, Sonoma, Marin counties – etc – there are now unofficially few good options. But there are options. The good news is that the nonadmitted markets are alive an well. The FAIR/DIC options have stabilized. So you probably can still get insurance. And your insurance agent may matter more than normal.
But the costs will be higher, the coverages lower, and the pain will be felt by more.
Can I Still Get Auto Insurance from State Farm?
According to their news post – it does seem that State Farm is still selling auto insurance at this time. However contact a State Farm Agent today to inquire.
This article contains the latest news on this subject from May of 2023. Updates and Conditions can and will change and this article may NOT have the latest information available.
Can I Still Get a Personal Umbrella from State Farm Insurance?
Can you still get an umbrella policy through State Farm? We have been unable to locate written documenation of this part of their decision. Therefore we will just state that at this time its unclear. Inquire with a State Farm agent.
Do State Farm Agents Write Policies with the FAIR Plan?
Again there is little documentation to support this one way or the other. However the word on the street is that currently State Farm agents do not write policies through FAIR. However contact your State Farm agent today to inquire about the California FAIR.
State Farm newsroom Source.
June 2023 Update to the State Farm Home Insurance Halt:
The media has been alive and well in regards to State Farm leaving California homeowners out in a lurch. According the Insurance Journal [through the DOI] “State Farm currently has 21% of the homeowners market”. Within the insurance industry this is considered a pretty significant concentration. This is likely one reason that there has been much press on this important subject.
Additionally PIA West discusses the “largest writer of homeowners and business insurance policies in the country.” These include State Farm as having about 18% and the second runner up [Allstate] at only 9%. These are followed by Liberty Mutual [7%], USAA, [6%] and Farmers [6%]. These numbers are all rounded by me and would appear to be national numbers [although that was not entirely clear from the article.]
More updates available as they come.
