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California’s real estate market is too hot to handle for State Farm, which announced on Friday that it stopped accepting new homeowners’ insurance applications in the face of booming construction costs, intensifying wildfire risks and a “challenging” reinsurance market.
“We take seriously our responsibility to manage risk,” a company statement reads. “We recognize the Governor’s administration, legislators, and the California Department of Insurance (CDI) for their wildfire loss mitigation efforts.”
“We pledge to work constructively with the CDI and policymakers to help build market capacity in California,” it notes. “However, it’s necessary to take these actions now to improve the company’s financial strength.”
The company said the policy change does not impact current customers, and they’ll consider reopening applications when market conditions improve.
“State Farm independent contractor agents licensed and authorized in California will continue to serve existing customers for these products and new customers for products not impacted by this decision,” the statement concludes.
A company spokesperson did not respond to Inman’s inquiries about the status of applications submitted in the days leading up to the ban and whether current homeowners will experience changes in insurance premiums or claims service. Inman also asked questions about how exactly the company plans to help mitigate wildfire losses and the specific benchmarks for determining when they’d consider taking on new homeowner insurance clients again.
State Farm’s decision comes on the heels of a longstanding battle between insurance companies and the California Department of Insurance, as a growing number of insurers stop renewing plans.
“Many of our communities in rural, forested areas of California are experiencing not only increasing wildfire and increasing wildfire severity but also increasing insurance problems,” University of California natural resources adviser Ryan Tompkins told The Washington Post over the weekend. “They’re getting dropped. They’re getting non-renewed. We’re seeing a sort of insidious, quiet impact economically.”
In September, California Insurance Commissioner Ricardo Lara announced a mandatory one-year moratorium on homeowner insurance cancellations and non-renewals for 236,000 wildfire survivors in Riverside, Placer and El Dorado counties.
“Wildfires are devastating even if you did not lose your home, so it is absolutely critical to give people breathing room after a disaster. This is not the time to be having to search for insurance,” Commissioner Lara said in September. “My Department will be there every step of the way as people rebuild stronger and safer, and I will continue to enforce this crucial law that protects our state’s wildfire survivors after a declared emergency.”
Although the department was able to stop insurance cancellations for a portion of California homeowners last year, CDI spokesperson Michael Soller told CNN on Sunday “the factors behind State Farm’s move are beyond the agency’s control.”
“While insurance companies prioritize their short-term financial goals, the long-term goal of the Department of Insurance is protecting consumers,” Soller added.
Inman reached out to several agents and brokers in California who said they were still processing the news. They hadn’t received any questions from buyers or sellers about State Farm’s announcement but noted it could become a point of concern for clients as everyone better understands the repercussions, they said.
The Address broker-owner Troy Palmquist said State Farm’s decision “isn’t the end of the world” as there are many other insurers — the CDI lists 112 — who are still active in the state.
Palmquist said consumers who plan to bundle their insurance plans may bear the brunt of State Farm’s decision in the short term. “That’s where I think some of the problems are gonna come in,” he said. “It’s going to be like, well, ‘I want to keep my stuff with this vendor’ and then not being able to do it.”
In the long term he said he’s worried about insurers, including State Farm, raising homeowners’ premiums to untenable levels, especially as climate risks continue to worsen across the nation.
“I think [State Farm] probably just got beat up in California for a little bit,” he said. “As far as the others, I don’t know — hope they don’t leave the state. I could see spikes in homeowner premiums, which we definitely don’t need in the midst of everything else going on with interest rates and mortgage payments.”
“I know that the insurance companies just in general don’t like the fire zones, so it isn’t surprising,” he added. “I don’t think this is like the banking industry where one fails and then others kind of fail or follow suit. It isn’t the end of the world, but it still sucks.”