Jane Dotson
State Farm, California's largest homeowner's insurance provider, has stopped writing new homeowners insurance policies in California. This decision, which came into effect on May 27, 2023, was due to historic increases in construction costs, rapidly growing catastrophe exposure, and challenging reinsurance market conditions. The company has also indicated that it will not be renewing policies for about 50,000 existing California customers, with the highest number of non-renewals in Orinda's 94563 ZIP code, representing 55% of the city's homeowner policies. This has left many California homeowners scrambling for coverage or unable to find it, and has raised questions about the stability of the state's home insurance market.
| Characteristics | Values |
|---|---|
| State Farm's decision to stop writing new homeowners insurance policies in California | Due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market |
| Impact | State Farm will not be renewing 1,703 policies in Orinda's 94563 ZIP code, which represents 55% of the city's homeowner policies |
| Alternatives | California Fair Plan, Farmers, Allstate |
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What You'll Learn
State Farm's departure from California's insurance market
State Farm, California's largest homeowner's insurance provider, has decided to cease writing new homeowners insurance policies in California. This decision, which came into effect on May 27, 2023, was due to various factors impacting the company's financial health. These factors included historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.
In a statement, State Farm emphasized that the decision was not made lightly and was based on a careful analysis of their financial health. The company also acknowledged the efforts of the Governor's administration, legislators, and the California Department of Insurance (CDI) in mitigating wildfire loss. State Farm pledged to work with the CDI and policymakers to help build market capacity in California.
State Farm's departure from writing new homeowners insurance policies in California has left many residents seeking alternative options. The California FAIR plan, subsidized by the state, is available for homeowners who live in areas at high risk of catastrophes like wildfires. However, this coverage is typically more expensive than traditional home insurance policies.
The impact of State Farm's decision is significant, as the company insured one in five homes across California. From 2023 to 2028, it is projected that State Farm's policies for property insurance, including homeowners insurance, could decline from 3.1 million to 2 million. This reduction includes both planned non-renewals and policyholders choosing to cancel or switch their insurance coverage.
While State Farm is no longer writing new homeowners insurance policies in California, the company continues to serve existing customers and those with products not impacted by this decision. State Farm independent contractor agents licensed in California remain dedicated to servicing these policies.
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The impact on California homeowners
State Farm's decision to stop writing new homeowners insurance policies in California and ending coverage for existing customers has had a significant impact on California homeowners. As California's largest homeowner's insurance provider, State Farm's departure from the market has left many residents scrambling to find alternative coverage. The company's decision has been attributed to various factors, including increasing construction costs, wildfire risks, and reinsurance costs.
The impact of State Farm's decision is particularly evident in certain Bay Area ZIP codes, such as Orinda's 94563, where 55% of homeowner policies are affected. Homeowners in high-risk areas, such as those prone to wildfires, now face limited options for insurance coverage. The California FAIR plan, subsidized by the state, is one alternative, but it is expensive and offers only fire coverage. This situation has led to a strain on the state-run program, with a 20% increase in policyholders in 2023.
The California Department of Insurance has implemented measures to address the situation, including approving rate increases for insurance companies to prevent insolvency. However, these rate hikes have been met with resistance from consumer advocacy groups, who view them as a bailout by policyholders. The department is also working with insurers to pursue regulatory reforms to improve the alignment between insurance rates and risks.
While State Farm's departure has caused concern among California homeowners, there are still options available in the market. Other insurance providers, such as Farmers, have resumed writing policies and increased their presence in the state. Additionally, more than 115 insurance companies currently offer homeowners insurance in California. However, the overall impact on the market has led to a challenging environment for homeowners seeking affordable coverage, with nearly 7% of real estate deals falling through due to insurance issues.
The situation has also raised questions about the stability of the California home insurance market and the need for industry overhauls. It remains to be seen how long it will take for the market to stabilize, even with new laws and reforms in place. In the meantime, homeowners in California are facing a period of uncertainty and limited choices when it comes to insuring their properties.
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The California FAIR plan
State Farm, California's largest homeowner's insurance provider, has decided to stop writing new policies for new California homes and to end coverage for existing customers. This decision was made due to historic increases in construction costs, rapidly growing catastrophe exposure, reinsurance costs, and decades-old insurance regulations.
Homeowners who live in areas at high risk of catastrophes, such as wildfires, can purchase a policy through the California FAIR Plan. This plan was established over 50 years ago to ensure that all California property owners have access to basic fire insurance when coverage in the traditional market is not available through no fault of the property owner. The FAIR Plan is available to California residents and businesses in urban and rural areas who cannot obtain insurance through a regular insurance company.
The FAIR Plan's policies are tailored to provide coverage for basic fire insurance. Any licensed insurance agent or broker registered with the FAIR Plan can assist in purchasing fire insurance from the FAIR Plan. There is no additional cost for having an insurance broker, who will perform a diligent search for comprehensive coverage in the traditional marketplace to determine if the FAIR Plan is right for the customer. If coverage is available in the traditional marketplace, the FAIR Plan is not the right option.
In 2025, a Los Angeles County Superior Court Judge ruled that the California FAIR Plan's smoke-damage policy is illegal. The judge stated that the plan violates the insurance code by providing less coverage than what is required by the state's Standard Form Fire Insurance Policy, which provides coverage for all "loss by fire". The FAIR Plan's handling of smoke damage claims has angered homeowners, who claim they were given lowball offers to close their claims.
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State Farm's financial health
2022 Financial Results
In 2022, State Farm's auto insurance companies reported record underwriting losses due to increasing claims severity and significant additions to prior accident-year incurred claims. State Farm experienced unfavourable operating results in the auto sector, but its life insurance companies paid out nearly $600 million in dividends to policyholders. They also issued a record $110 billion in new policy volume, bringing the year-end 2022 individual life insurance in force to $1.1 trillion. Despite the challenges, State Farm maintained its position as the number one auto and homeowners insurer in the US and a leader in individual life insurance.
2023 Financial Results
State Farm reported severe financial losses in 2023, with a pre-tax operating loss of $8.5 billion, similar to the $8.3 billion loss in 2022. Total revenue increased to $104.2 billion, up from $89.3 billion in 2022. The property and casualty insurance companies experienced growth in policies, but also reported underwriting losses due to elevated claims severity and catastrophe activity in both the auto and homeowners insurance sectors. The auto insurance sector reported an underwriting loss of $9.7 billion, while the homeowners, commercial multiple peril (CMP), and other lines experienced a $4.7 billion underwriting loss. State Farm's life insurance companies reported over $725 million in dividends to policyholders and issued a record $118 billion in new policy volume, with year-end 2023 individual life insurance in force at $1.1 trillion. Despite the losses, State Farm Mutual Automobile Insurance Company remained financially strong, with a reported $3.5 billion increase in net worth.
2024 Financial Results
In 2024, State Farm's financial performance improved. They reported a net income of $5.3 billion, a significant turnaround from the net loss of $6.3 billion in 2023. Total revenue increased to $123 billion in 2024. The net worth of State Farm Mutual Automobile Insurance Company also grew to $145.2 billion, up from $134.8 billion at the end of 2023. State Farm continued to face challenges with underwriting losses in the auto sector, but there was an overall improvement in auto lines underwriting results. The financial strength of State Farm and its affiliates is critical to fulfilling promises to customers and expanding services.
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The future of homeownership in California
The impact of these changes is significant, with approximately 55% of California's nearly 40 million residents estimated to own homes. The California Association of Realtors' 2023 Annual Housing Market Survey revealed that nearly 7% of real estate deals in the state collapsed because buyers struggled to find affordable insurance. This trend is expected to continue, with State Farm projecting a drop of 1 million policies in California over the next five years.
However, it's important to note that there are still options available for homeowners seeking insurance coverage in California. Over 115 insurance companies currently offer homeowners insurance in the state, and the FAIR Plan provides a last-resort option for those unable to secure coverage in the private market. This plan is subsidized by the state and offers fire coverage, including for wildfires, but it is typically more expensive than traditional home insurance.
The California Department of Insurance is working closely with insurance providers to address the challenges in the market. They have approved rate increases for some companies to protect them from insolvency and are pursuing regulatory reforms to better align insurance rates with risk. These reforms include streamlining the rate application process, accounting for catastrophe modeling, and addressing FAIR Plan vulnerabilities.
While the current situation is challenging, there is optimism that the market will stabilize in the coming years. The insurance commissioner expects more insurers to enter the market in 2025, providing more options for homeowners. In the meantime, California homeowners should be proactive in exploring their insurance options and staying informed about the evolving landscape of the home insurance market in the state.
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Frequently asked questions
No, State Farm is not writing new homeowners insurance policies in California. In May 2023, State Farm announced that it would no longer accept new business and personal property and casualty applications. This decision was due to financial distress, increasing construction costs, and worsening wildfires in the state.
There are still plenty of options for homeowners insurance coverage in California, including Farmers, Allstate, USAA, Travelers, Nationwide, and Chubb. Homeowners who live in areas at high risk of wildfires may purchase a policy through the California Fair Plan, which is subsidized by the state.
State Farm's decision has put immense strain on the home insurance market in California, with some residents struggling to find coverage. It has also raised questions about the stability of the California home insurance market and highlighted the need for changes in the state's insurance regulations.
