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California’s home insurance meltdown continues, Illinois-based insurer to discontinue coverage for thousands of homeowners

The states of California and Florida are facing serious home insurance crises, and things are only getting worse, especially for California residents. Just recently, the Texas-based American National announced that it is leaving the state due to profitability concerns and that it won’t offer new insurance policies by later this year. A few days ago, State Farm General said in a press release that it wouldn’t offer renewal to tens of thousands of homes and commercial apartments in California, further deepening the insurance crisis in the state.

The insurance crisis explained

Climate change is to blame. Wildfires in California reshape whole regions every year, leaving literally nothing behind. In Florida, devastating hurricanes are becoming more frequent. In recent years, such disasters have happened more often and are becoming more brutal, causing a lot of damage to places where people live and directly impacting their lives in many ways. These natural disasters also directly affect the home insurance market, as insurance companies have to pay huge sums to cover damages.

The efforts

As the most exposed states to the home insurance crisis, Florida and California leaders are taking proactive measures to fix this issue that affects millions of people, including home buyers, sellers, builders, and the economy at large. For instance, in The Golden State, California’s Insurance Commissioner is proposing regulatory reforms to stabilize the shaky home insurance market in the state. One proposal is to give companies more flexibility to raise their premiums, which State Farm acknowledged but could not change its decision on.

State Farm General lowering operations

Last week, the insurance company State Farm General, based in Illinois, announced through a press release that it’s not going to renew the insurance for 30,000 houses and about 42,000 business properties in California. This action affects slightly more than 2% of their policies in the state. Given that State Farm General covers one-fifth of all home insurance in California, this move is expected to significantly shake up the market for home insurance, impacting both homebuyers and the industry at large. This comes after their announcement nine months earlier where they stated they would no longer offer new home insurance policies in California.

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State Farm General said in a press release that it wouldn’t offer renewal to tens of thousands of homes and commercial apartments in California
Insurance policy – Credit: Unsplash

Explaining the decision

“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,” State Farm said last week. “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.”

Insurance companies leaving California

California’s home insurance landscape is looking grim, with more and more insurance companies halting their operations in the state. This trend is leaving homeowners with fewer choices for insuring their properties, creating a significant issue with no easy fix in the horizon. The California Department of Insurance is fully aware of this escalating problem and is starting to take action to try and manage the situation.

“One of our roles as the insurance regulator is to hold insurance companies accountable for their words and deeds. State Farm General’s decision today raises serious questions about its financial situation—questions the company must answer to regulators,” said Michael Soller, Deputy Commissioner for Communications at California Department of Insurance, to a written statement sent to Newsweek.

“As state regulators, we deal with companies that are national and multinational in scale. To be effective for Californians, we join forces with other states so we can understand the basis for insurance companies’ decisions and how they plan to recover financially. In this particular situation, we have been working with State Farm’s home state of Illinois to get a full picture of its financial condition and plan for improvement. We need to be confident in State Farm’s strategy moving forward to live up to its obligations to its California customers,” Soller added.

State Farm General said in a press release that it wouldn’t offer renewal to tens of thousands of homes and commercial apartments in California
Wildfires – Credit: Unsplash

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The FAIR Plan

With fewer choices available, a lot of homeowners in California find themselves turning to the state’s back-up insurance option, the FAIR Plan. According to a report by the San Francisco Chronicle, the FAIR Plan has seen its policy numbers jump by more than 25% since the close of 2022. Now, it supports over 350,000 policies, highlighting how severe the situation has become for insurance seekers in the state.

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