State Farm wasn’t quite done making tough decisions about writing business in California when it announced that it wouldn’t accept applications for new homeowners policies in the state in May of last year.

Providing an update this week, the giant insurance company said it is nonrenewing some homeowners policies and withdrawing from offering policies for commercial apartments this summer.

Related article: We’re Done: State Farm Decides to Stop Taking New Calif. Homeowners Biz

Specifically, State Farm General Insurance Company, the State Farm provider of homeowners insurance in California, will:

  • Nonrenew approximately 30,000 homeowners, rental dwelling and other property insurance policies (residential community association and business owners) beginning July 3.
  • Withdraw from offering commercial apartment policies with the nonrenewal of all of those approximately 42,000 policies, beginning Aug. 20, 2024.

State Farm General “is working to ensure its long-term sustainability in California. In doing so, State Farm General has had to make some difficult but necessary decisions,” the company said in a media statement.

This decision was not made lightly and only after careful analysis of State Farm General’s financial health… State Farm General takes seriously our responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws.”

“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,” the statement said, going on to talk about financial solvency risks.

Specifically, the company said it takes its “responsibility to maintain adequate claims-paying capacity” for customers seriously, along with its responsibility “to comply with applicable financial solvency laws.”

“It is necessary to take these actions now,” the statement said while taking note of California Insurance Commissioner Ricardo Lara’s previously announced Sustainable Insurance Strategy, including proposed regulatory reforms to streamline the rate application process, take account of catastrophe modeling and reinsurance costs in rates, and address FAIR Plan vulnerabilities.

Related article: No Sugarcoating: Availability Before Affordability, Calif. Commish Says

“We will continue to work constructively with the California Department of Insurance, the Governor’s Office, and policymakers to actively pursue these reforms in order to establish an environment in which insurance rates are better aligned with risk,” State Farm said.

In a statement obtained by Insurance Journal, Michael Soller, Deputy Commissioner of Communications and Press Relations for the California Department of Insurance, said: “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.”

“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 stated.

State Farm said the policies subject to its latest decision represent just over 2 percent of State Farm General’s policy count in California and that it intends to notify impacted customers in advance of their policy expiration dates to provide information on other coverage options.

State Farm independent contractor agents licensed in California will continue to service policies not impacted by these decisions, the carrier said.

“State Farm General’s May 2023 decision regarding new applications remains unchanged,” the statement said, adding, “We will evaluate the need for any additional business actions as market conditions change.”

Sources: State Farm media statement; CDI statement emailed to Insurance Journal