Farmers Insurance Exodus: The California Conundrum

In July 2023, Farmers Insurance announced that it would be limiting the number of new homeowner policies in California, following similar decisions by State Farm and Allstate. The company cited record-breaking inflation, severe weather events, and increasing reconstruction costs as reasons for the change. This decision has made it harder for Californians to find homeowners insurance, particularly those with older properties. While Farmers Insurance continues to sell home insurance in the state, consumer advocates worry that decreasing competition could lead to higher premiums.

Farmers Insurance is still selling home insurance in California

Farmers Insurance is the third major insurance company to limit policies in California, following similar announcements from Allstate and State Farm earlier in 2023. Allstate was the fourth-largest property and casualty insurance provider in California in 2021, while State Farm was the largest property insurer. Together, Farmers Insurance, Allstate, and State Farm account for about 21.6% of the California market, with approximately 19.4 million premiums as of 2022.

In an email to The Standard, a Farmers spokesperson confirmed that the company had paused several insurance programs and was limiting the amount of new business it takes on. The spokesperson cited record-breaking inflation, severe weather events, and rising reconstruction costs as reasons for the decision. They also stated that the company is focused on serving its existing customers while effectively managing its business.

Despite these limitations, Farmers Insurance is continuing to sell home insurance to Californians, and its footprint in the state is not expected to change significantly. Michael Soller, a deputy commissioner at the California Department of Insurance, stressed that Farmers is not leaving the state. He said, "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."

Insurance regulators have downplayed the significance of Farmers' move, noting that the company is still writing a significant number of new policies. However, some worry that the decreasing availability of new homeowner policies could lead to higher premiums, adding to the cost of buying a home in California.

The company cites inflation, severe weather, and reconstruction costs as reasons for limiting policies

Farmers Insurance has cited several reasons for limiting its insurance policies in California. The company is facing challenges due to record-breaking inflation, severe weather events, and climbing reconstruction costs. These factors have led to increased business costs and difficulties in managing their operations effectively.

Inflation has had a significant impact on the cost of rebuilding damaged homes, with soaring inflation driving up the prices of materials and labour. Severe weather events, such as wildfires and floods, have also contributed to the decision. California has experienced an increase in severe weather incidents, including the Camp Fire, which was the deadliest and most destructive fire in the state's history. The combination of inflation and severe weather has resulted in higher costs for insurance companies when replacing homes.

In addition, insurance companies in California are facing challenges due to the volatile reinsurance market, which has driven up the costs of insuring themselves against disasters. The state's insurance department has also been criticised for not approving necessary rate increases quickly enough to keep up with inflation and growing risks.

Farmers Insurance's decision to limit its policies in California is similar to the moves made by other major insurance providers, such as State Farm and Allstate, who have also cited wildfire risks and rising costs as reasons for their decisions. The company's statement highlights their commitment to serving their customers while managing their business effectively in a challenging market.

Allstate and State Farm also limited policies in California

In 2023, Allstate and State Farm decided to stop writing new homeowners insurance policies in California. Allstate was the fourth-largest property and casualty insurance provider in the state in 2021, while State Farm was the largest property insurer.

Both companies cited worsening climate conditions, higher building costs, and the increasing risk of wildfires as reasons for their decisions. Allstate also mentioned state regulations and inflation as factors in its choice to pause new policies in California.

The moves by Allstate and State Farm have made it more difficult for Californians to obtain homeowners insurance, particularly in areas at high risk of wildfires. The state's insurance commissioner, Ricardo Lara, announced new protections for homeowners in 2021, including increased payouts and evacuation benefits for wildfire survivors. However, insurance companies have called for a change in regulations to allow them to use forward-looking models to assess wildfire risks and set prices accordingly.

The decisions by Allstate and State Farm to limit their business in California have also raised concerns about the availability and affordability of homeowners insurance in the state. While there are still over 100 insurance companies operating in California, consumer advocates worry that decreasing competition could lead to higher premiums.

In response to the insurance crisis, the state offers the FAIR Plan, an insurance industry-funded "insurer of last resort" for people who cannot find coverage on the market. However, this plan typically offers more expensive and minimal coverage.

California's insurance commissioner cannot take action against the companies

California's insurance commissioner, Ricardo Lara, has said that he does not plan on taking action against large insurance companies that are no longer accepting new policies in the state. In an interview with KCRA 3, Lara stated that he does not have the authority to reverse the decisions of these companies.

Lara commented:

> "We're going to focus on the things we can do, which is bringing companies together, having the conversation, making sure consumers are protected and don't lose their coverage, and that's what we're going to focus on."

The California Department of Insurance's core mission is consumer protection. They issue insurance licenses, investigate consumer complaints, and enforce the rules that insurance companies must follow. However, the department does not typically resolve disputes between individuals and insurers that involve large-dollar disputes or coverage disputes. Instead, they can help individuals obtain a copy of their policy, resolve small to medium-sized problems, and identify and punish patterns of bad behaviour.

The Department of Insurance understands that Farmers has been writing 7,000 monthly new homeowners' policies on average, so this is not a departure, and they do not expect their footprint in the state to change significantly.

While there are more than 100 insurance companies still operating in California, consumer advocates say that some smaller companies are still able to help.

Consumer advocates say other insurance companies can help

While Farmers Insurance is limiting its sales of homeowners policies in California, consumer advocates say that some of the smaller insurance companies that are still in operation in California can help. California Insurance Commissioner Ricardo Lara said his department did not plan on taking action against large insurance companies that aren't accepting new policies in the state. He also noted that he doesn't have the authority to reverse the decision of these companies.

• Find a professional agent who is knowledgeable about the market and has access to more options than an individual consumer.
• Take advantage of new rules that require insurance companies to offer discounts to policyholders who take steps to reduce wildfire risk on their properties.
• Consider raising your policy deductible to lower your premium.
• Be cautious about filing small claims as it could lead to higher premium costs.
• If you are forced to use the California FAIR Plan, continue to shop around every few months as carrier calculations and policy offerings change.
• Compare quotes from several providers before making a decision.
• Look for companies with strong customer service reputations and solid finances.

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