State Farm predicts the variety of policies issued in California will fall by a million by 2028 because the insurance giant struggles financially and pulls out of the Golden State.
The insurer's property insurance policies, which include home insurance, could fall from 3.1 million at the top of 2023 to 2 million by the top of 2028, in line with a Sept. 10 filing with the California Department of Insurance.
Since May 2023, State Farm has stopped writing recent homeowners insurance within the state because the specter of wildfires and rising construction costs have caused the corporate's liabilities to skyrocket.
The decline noted within the filing includes each planned non-renewals and natural fluctuations as policyholders resolve to cancel or switch their coverage.
Amy Bach, executive director of United Policyholders, an insurance consumer advocacy group, said it's possible those forecasts could change and will eventually lead State Farm to extend the variety of policies within the state, especially if the state Department of Insurance closes among the carries out reforms that it has proposed to the insurance market. This includes speeding up the review process for insurers searching for rate increases and allowing them to factor the projected costs of future wildfires and disasters into their rates. Currently, insurers can only set insurance prices based on historical models – which consumer advocates say makes their models transparent.
“The insurance commissioner has said that he expects the market to reopen in 2025 and that we will see many more insurers willing to write more policies in the new year,” Bach said. “So we can see this as more bad news in 2024 and hope 2025 will be better.”
State Farm is California's largest home insurer, insuring one in five homes across the state. This yr, the corporate also told 72,000 policyholders that it might not be renewing their coverage starting in July.
State Farm didn’t reply to a request for comment on the projections, but said non-renewals represent just over 2% of State Farm's policy count in California.
The company is currently applying to the California Department of Insurance to approve a plan to extend rates statewide by 30% – after raising average rates for homeowners by 20% back in March – to guard the insurance company from bankruptcy.
The company could have fewer people canceling their policies if the proposed rate hikes aren't as steep, said Carmen Balber, executive director of Consumer Watchdog, which closely monitors the insurance industry.
“That could change if we can get in the way of this huge rate hike,” she said.
Consumer Watchdog has filed a petition to stop the speed hike, which they described as a “policyholder bailout of $5.2 billion over the next four years.” This process is ongoing and there is no such thing as a timeline for when it may be resolved.
State Farm is just one among many corporations reducing insurance coverage in California while raising rates for policyholders on their books. In August, state regulators approved Allstate's offer to boost rates by a median of 34%, affecting 350,000 homeowners, including 70,000 within the Bay Area.
As insurers pull out of California, increasingly persons are counting on the FAIR Plan, the state's insurer of last resort. The variety of policyholders within the plan, which offers protection from wildfires to those that can't get it elsewhere, has increased by greater than 20% to greater than 350,000 within the last yr alone. The plan's liability risk has risen from $50 billion in 2018 to $336 billion in February 2024, and administrators warn that only one bad wildfire could overwhelm the plan's resources.
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