State Farm furthers retreat from California property market
In total, the company will not be renewing some 72,000 commercial and personal property policies in the state.
State Farm General Insurance Co. will not be renewing some 30,000 California homeowners, rental dwellings and other residential community associations and business owners property policies. The company reported it is also pulling its commercial apartment line from the state and will not be renewing around 42,000 of those policies.
The policies facing nonrenewal combined to represent slightly more than 2% of State Farm General’s policy count in the state.
The nonrenewals will take place during the course of this year, starting July 3 for homeowners, rental dwellings and residential communities, and Aug. 20 for commercial property policies.
The company also reaffirmed its May 2023 decision to stop accepting home insurance applications in California.
The decision to drop these policies was made due to the continued impact of inflation, increasing catastrophe exposure and a challenging reinsurance market, according to the company.
Proposition 103
Additionally, State Farm pointed to California’s Proposition 103 and the “limitations of working within decades-old insurance regulations” as reasons for its decision.
Prop 103, which went into effect 1988, made way for the public to have a role in the setting of insurance rates and established a regulatory framework around rate setting.
However, insurance companies and industry trade groups contend that Prop 103 makes achieving rate adequacy a herculean task for carriers operating in the state.
Part of what makes rate adequacy so difficult to achieve in California are provisions in Prop 103 that require insurers to only use historical data when pricing policies. This removes more accurate, modern and advanced data and modeling technologies from underwriters’ tool belts.
The call for a more modern approach to pricing risk has not gone unnoticed by state regulators. California Insurance Commissioner Ricardo Lara recently unveiled a series of proposals to revamp catastrophe modeling and ratemaking rules as part of the Sustainable Insurance Strategy.
The old rules, according to the insurance regulator, resulted in rate spikes and higher premiums after major wildfires, while failing to account for the growing risk caused by climate change or risk mitigation efforts made at community and regional levels.
“My strategy will help modernize our marketplace, restoring options for consumers while safeguarding the independent, transparent review of rate filings by Department of Insurance experts, which is a bedrock principle of California law,” Lara said in a press release.
Related: