Californians might see even higher insurance rates as State Farm projects a major decrease in policy offerings
California – One of the largest insurance companies in the U.S., State Farm, has anticipated a major decrease in its California policy offerings, potentially eliminating over one million contracts in the next five years caused by financial uncertainty. The latest filings with the California Department of Insurance show that State Farm’s property insurance business would see a total policy count drop from 3.1 million to less than 2 million, reflecting this extreme measure.
Established in 1922, State Farm is a well-known name in the American insurance scene, ranking third most popular insurance brand countrywide based on YouGov. The company handles more than 91 million policies in several areas, including auto, fire, life, health, commercial, and financial services. Covering more than 1.2 million residential and commercial properties, it is the main provider of home insurance in California.
The main cause of the impending policy drop is declining customer retention; more policyholders either choose not to renew their policies or cancel them because of non-compliance. State Farm said earlier this year that it would not be renewing approximately 30,000 residential, rental, and other property insurance policies. It also intends to stop providing commercial apartment policies, therefore impacting almost 42,000 policies beginning from July. About 2% of the insurer’s whole California policy count consists of these adjustments.
State Farm General has likewise anticipated a considerable drop in its surplus by 2028 among these challenges. The business is enacting large rate increases in an attempt to save its financial reserves. With these new rates scheduled to be shown on consumer bills effective in 2025, homeowners would face a 30 percent hike; condominium owners a 36 percent increase; rental house rates will soar by 52 percent.
Mostly due to wildfires, California has seen regular policy cancellations and pullbacks by insurers following significant disasters. Fires in 2017 and 2018 further shook the state’s insurance scene, which led insurers like State Farm to review their renewals in order to restore financial stability. Likewise, Liberty Mutual Fire Insurance chose not to renew policies for 17,000 homes last year claiming the inadequacies of its new technological system to manage such policies after upgrading from a previous model. But this choice was said to have nothing bearing on wildfire hazards.
Other big players have also changed their approach in response to the insurance upheaval. Following state approval, Allstate, for example, increased its homeowner insurance premiums by an average of 34.1% in August, among the most dramatic rate hikes among major insurance companies since 2021. Likewise, following its nonrenewal announcement in March, State Farm itself raised its homeowner insurance rates in California by 20 percent this year.
The California house market has been severely affected by the uncertainty in the insurance industry. Property values have started to decline as insurance rates increase, which leaves homeowners and potential buyers juggling the dual issues of growing premiums and declining value. This scenario provides a negative image for the stability of the California housing and insurance industries in the next years.
