Farmers will limit new homeowners insurance policies in California, according to a statement issued by the carrier.
The move follows a similar decision by State Farm last month and adds to a growing list of major carriers cooling on California.
“We are working diligently with the California Department of Insurance and others interested in improving the availability of property insurance in the state,” the statement reads. “With record-breaking inflation, severe weather events, and reconstruction costs continuing to climb, we are focused on serving our customers while effectively managing our business. Effective July 3, Farmers will limit new homeowners insurance policies in California to a level consistent with the volume we projected to write each month before recent market changes.”
On the heels of the announcement, the American Property Casualty Insurance Association issued a call to reform California’s primary insurance law following another large insurance carrier limiting new homeowners insurance writing in California.
The APCIA is seeking to reform Proposition 103, a law passed by voters in 1988 that requires carriers to get prior approval from the California Department of Insurance before implementing property/casualty insurance rates. Prop 103 outlines factors in ratings.
The APCIA’s call for reform comes as several carriers have pulled back from California.
A report out in June from Gallagher Re shows the threat of damaging wildfires in conjunction with inflation and pricing challenges has led to a distressed insurance and reinsurance market, particularly in California. (Related article: Strategic Portfolio Management Needed to Address Wildfire Risk)
State Farm General Insurance Co. announced at the end of May that it had stopped accepting new policy applications for property/casualty insurance in California for reasons including increased risks from wildfires and inflation. The decision followed a similar move by Allstate Corp. last year.
Other large carriers that have announced a reduced appetite for writing California homeowners insurance include AIG and Chubb.
“Insurers do not want to retrench from one of the nation’s most important markets, but cannot continue to operate and protect policyholders when insurers are struggling to secure an adequate rate and manage their risk exposure,” David A. Sampson, APCIA’s president and CEO, said in a statement released on Friday.
He said the problems with the “outdated regulatory scheme” creates challenges, which have combined with other factors that have “led to the implosion of the California insurance market.”
Those factors include one of the most prolonged and severe droughts in the Western U.S. in recorded history, historic wildfires in 2017, 2018, and 2020, high inflation and supply-chain disruption. and legal system abuse.
“This means insurers need tools to manage catastrophic risk and California’s outdated regulatory regime is not providing those tools,” Sampson said. “Insurers are committed to California, and we look forward to working with the California Department of Insurance and policymakers to enact real solutions so the Golden State can have a functioning and thriving insurance marketplace that benefits policyholders.”
A spokesperson for the California Department of Insurance, Michael Soller, said Farmers is one of more than 100 companies continuing to write new homeowners business in California.
“Californians are covered,” Soller said in an email responding to a request for comment. “They continue to have many choices including Farmers. The Department of Insurance understands Farmers has been writing 7,000 monthly new homeowners policies on average. So this is not a departure. We do not expect their footprint in the state to change significantly one way or another. By maintaining its historic average of new homeowners policies in California, Farmers is showing its continued commitment to the Golden State for the long haul.”
APCIA’s statement calling for reform argues that California insurance marketplace solutions should include:
- Allowing the use of catastrophe modeling in rate filings.
- Allowing the use of reinsurance in ratemaking.
- Reforming the rate filing process to complete reviews within statutory timeframes.
- Reforming the California FAIR Plan assessment process.
- Advocating for expanded wildfire mitigation to reduce the risk and make coverage more available in high-risk areas.
“California’s regulatory framework (i.e., Proposition 103) is 35 years old and is ill-equipped to handle the increasing challenges wrought by climate change, and is resulting in the insurance market upheaval California faces today. It is time to modernize Proposition 103,” Sampson said.
This article was originally published by Insurance Journal. Reporter Don Jergler is the West Coast editor of Insurance Journal.
- Report: Wildfire Fears at ‘All-Time High’ and Driving Insurer Decisions in Property Market
- Insurer Group Reacts to California Department of Insurance Musing on Cat Modeling
- Homeowners Insurer Retreat Signals Climate, Regulatory and Economic Challenges: Fitch Ratings
- State Farm’s California Halt Reflects Overall Poor Underwriting Experience, Ratings Agency Says