State Farm has made a startling prediction regarding its future in California, anticipating a substantial decrease in the number of policies over the next five years. Estimates indicate that the company could lose over a million policies as it grapples with ongoing financial difficulties and plots a gradual exit from the state.
In a report from the San Jose Mercury News, it’s revealed that documents submitted by State Farm to the California Department of Insurance on September 10 project a drop in the company’s property insurance policies, including homeowners’ insurance, from 3.1 million at the end of 2023 to approximately 2 million by the end of 2028.
Since May 2023, State Farm has ceased issuing new homeowners’ policies in California, primarily due to the escalating risks associated with wildfires and surging construction costs that have increased the company’s liabilities. The documents detail that the expected decline in policies is largely due to decisions not to renew existing coverage, along with policyholders opting to cancel or switch their insurance.
However, Amy Bach, the executive director of United Policyholders—a nonprofit dedicated to advocating for insurance consumers—argues that these forecasts might not be set in stone. She suggests that policy numbers could see an uptick if the state’s insurance department enacts meaningful reforms. This could involve streamlining the approval process for insurance companies wanting to raise premiums and enabling insurers to factor in anticipated future wildfire and disaster costs into their pricing strategies, rather than relying solely on historical data.
Bach also pointed out that California’s insurance commissioner expects a market recovery in 2025, predicting that more insurers may be inclined to take on additional policies as the new year approaches. Despite the setbacks anticipated in 2024, there is a glimmer of hope for a more favorable insurance environment in 2025.
It’s worth noting that State Farm is California’s largest homeowners’ insurance provider, insuring one in five households. This year alone, the company notified 72,000 policyholders that their coverage would not be renewed starting in July.
While State Farm has not publicly commented on this forecast, they did emphasize that the number of non-renewed policies amounts to just over 2% of their total policies in the state.
Currently, State Farm is seeking the California Department of Insurance’s approval for a proposal to raise statewide insurance rates by 30%. This comes on the heels of a 20% average increase in homeowner rates enacted in March, which the company argues is essential to avert potential bankruptcy.
Consumer regulatory bodies have initiated a petition to pause these rate hikes, but the process remains unresolved, with no clear timeline for when a decision will be reached.
State Farm isn’t alone in wrestling with California’s challenging insurance landscape; it is among several insurers reducing coverage while simultaneously increasing premiums for policyholders. In August, California regulators approved an average rate increase of 34% for Allstate, affecting 350,000 homeowners, including 70,000 in the Bay Area.
