California Official Declares ‘Crisis’ for Property Owners After State Farm Announcement

By: Alex Trent | Published: Mar 24, 2024

The state of California’s insurance commissioner gave an interview to KABC News on Friday that spelled out the trouble on the horizon from a March 20, State Farm announcement.

State Farm, a leading US insurance company and the largest in the state, said it would suddenly be cutting tens of thousands of policies. Property owners in California were already struggling under excessive premium costs and difficulty acquiring coverage.

Crisis Situation

State Farm announced that it intends to slash more than 70,000 insurance policies including home and apartment policies over the course of 2024. State Farm is another in a trend of insurance companies like Allstate and Farmers who are increasingly withdrawing business from the state.

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A newly constructed State Farm building.

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Ricardo Lara, California’s insurance commissioner told KABC News in Los Angeles, “This is a real crisis.”

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Overregulation

Lara asserts in the interview that regulators and the state legislature have created this problem by bad policies.

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A lawyer sat at his desk looking at a laptop. There is a sign behind him that says ‘Whimson Law Firm’ and a gavel is behind the laptop.

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“Insurance companies are not like utility companies,” he said. “By law, they don’t have to be here, and when we try to overregulate, we’ll see what happened after the Northridge earthquake, when the legislature came in and tried to overregulate, and they no longer write earthquake insurance in California.”

Criticism of Lara

Some place the blame on the current crisis on Lara’s leadership as an insurance commissioner. Lara has said he has to strike a “delicate balance” when dealing with these companies so they don’t scare off. 

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However, Carmen Balber of Consumer Watchdog criticized Lara’s dealings with these insurance companies. “What that tells us is the insurance commissioner’s plan is not working,” Balber said.

Legislative Solution

Consumer Watchdog thinks that California legislation has not gone far enough to protect California residents who desperately need this coverage.

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The California state capitol in Sacramento.

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“We have been urging for years now that California require insurance companies who want to sell home or auto insurance in California, sell to everyone who does the right thing and it protects their homes. We urge the insurance commissioner to support that policy change, which needs to go through the legislature,” said Balber.

State Farm’s Announcement

In a press release, State Farm outlined some of the reasons it had decided to cancel policies and withdraw business from the state.

An insurance office for the company State Farm.

Source: Social Woodlands/Wikimedia

“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.

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Non-Renewal

There were two major announcements contained in the State Farm Press Release, the first had to do with homeowner’s and rental dwelling policies.

A two-story suburban house with gray shingles and white trim. The house features a wrap-around porch with white railings

Source: Todd Kent/Unsplash

Statefarm said they would “Non-renew approximately 30,000 homeowners, rental dwelling, and other property insurance policies (residential community association and business owners). (A rental dwelling policy insures rental homeowners. Renters insurance is not affected.)”

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Commercial Apartment Policies

The second part of the announcement from State Farm concerned commercial apartment policies.

An angled perspective of a multi-story apartment building, showing a blue exterior with rows of protruding dark balconies. The building is contrasted against a clear sky and an adjacent orange building

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The press release stated that State Farm would “Withdraw from offering commercial apartment policies with the non-renewal of all of those approximately 42,000 policies. (A commercial apartment policy insures apartment owners. Renters insurance is not affected.)”

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Insurers Stopping Business

State Farm isn’t the only company that has decided to start slashing insurance policies. Major insurer Allstate has stopped issuing new homeowners insurance policies in California since 2022.

The entrance to a building owned by the insurance company Allstate.

Source: Raysonho/Wikimedia

High levels of recent inflation have put insurance out of reach of many California residents, and the housing market is undergoing its own crisis. Insurance companies are also facing huge losses every year from natural catastrophes like wildfires that make doing business not worth it.

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Lara’s New Plan

Lara talked about a new plan to change insurance company models that is being considered. He says that it will provide better ways for companies to access risk and will hopefully bring down premiums.

Two black boxes stacked on each other.

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“The current modeling is a black box,” Lara said. “We’re going to change that to be much more transparent.”

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What Affected Residents Can Do

If you are one of the tens of thousands affected by these insurance policy cuts, Lara says that the California Department of Insurance is ready to help.

An aerial view of a street lined with cars and houses in California, by palm trees, and underneath a clear blue sky.

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“We will make sure we have an insurance expert with you so that we help you transition and connect you with insurance companies who are writing policies in California,” he said.

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The Problem Continues to Grow

Since 2023, seven out of 12 of the largest insurance providers in California have started restricting or pausing homeowner policies altogether. The market is in trouble and some think it’s not sustainable the way things are currently going.

A close-up of vibrant and dynamic orange flames consuming wooden planks in a fireplace

Source: Wikimedia Commons

One insurance agent, Kelly Leif, agrees that things aren’t going well. “It is a crisis. There’s not enough carriers that are willing to write business, and the ones who say that they are, they make it so difficult,” Leif told KCRA News.

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