State Farm to stop offering new home insurance policies in California due to "growing catastrophe exposure"
State Farm said it will no longer accept new applications for home and business insurance in California because of an increase in catastrophic events and construction costs, the company announced Friday.
"State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market," the insurance company said in a statement.
The new guideline took effect Saturday and includes all business and personal lines property and casualty insurance. It will not, however, impact State Farm's personal auto insurance policies, the company said.
State Farm's independent contractor agents will continue to serve current customers who already have property and casualty insurance with the company, meaning they can still make claims for property that is already covered by the company. The company has also not issued any non-renewals at this time.
In 2021, California experienced at least 7,396 wildfires, which burned nearly 2.6 million acres of land, according to the California Department of Forestry and Fire Protection. In 2022, the state experienced 7,490 wildfires that burned 362,455 acres.
State Farm, which was the largest property and casualty insurer in California in 2021, brought in over $7 billion in premiums that year, but incurred losses of about $4 billion, state data showed.
According to the California Department of Insurance (CDI), insurance companies covering property may be required to cover living expenses such as emergency shelter and food, personal property and valuables, damage to the property and other buildings or structures on it, the removal of trees, shrubs and debris, and water damage not caused by a flood.
The company said it will continue to work with CDI and evaluate the market over time, indicating that this new policy could change depending on the economy.
State Farm is not the first insurance company to stop or limit property insurance coverage in California due to the increase in wildfires and state regulations. According to reporting by the Wall Street Journal last year, American International Group (AIG) notified thousands in California that their policies would not be renewed.
"It's necessary to take these actions now to improve the company's financial strength," the statement said. "We will continue to evaluate our approach based on changing market conditions."
CDI told CBS News in a statement Saturday that State Farm's decision is the result of uncontrollable factors, and does not affect the decisions of other insurance companies in the state.
"While insurance companies prioritize their short-term financial goals, the long-term goal of the Department of Insurance is protecting consumers," the statement said. "The factors driving State Farm's decision are beyond our control, including climate change, reinsurance costs affecting the entire insurance industry, and global inflation."
Last year, CDI enacted a new state policy which requires insurers to provide insurance discounts for homeowners and businesses that take actions to reduce fire danger around their structures.