The ZIP codes most affected by State Farm's California pullback
State Farm currently holds around 8.7% of all home insurance policies in California.
In March, State Farm General Insurance announced its intention to non-renew an estimated 72,000 policies – 30,000 property insurance and 42,000 commercial apartment policies – in California in order to ensure their long-term stability in the state. Homeowners policyholders who will be affected by the nonrenewals will start being informed on July 3, and commercial apartment policyholders will be notified beginning August 20.
This news comes after the insurer decided to stop accepting new applications for “all business and personal lines property and casualty insurance” with the exception of personal auto in May 2023; and after A.M. Best downgraded the insurer’s financial rating from A to B last month.
State Farm currently holds around 8.7% of all home insurance policies in California, and while these nonrenewals only account for around 2% of their business in the state, policyholders in some ZIP codes will be more heavily affected than others.
The San Francisco Chronicle reports that the ZIP codes that will see the highest rates of non-renewed policies include:
- 90272, Los Angeles County: 69% non-renewal (1,626 policies)
- 90077, Los Angeles County: 67% non-renewal (665 policies)
- 95033, Santa Clara/Santa Cruz County: 65% non-renewal (1,035 policies)
- 90049, Los Angeles County: 62% non-renewal (1,301 policies)
- 91302, Los Angeles County: 60% non-renewal (1,090 policies)
- 94563, Contra Costa County: 55% non-renewal (1,703 policies)
State Farm said in a press release that it made the decision to nonrenew these policies because of increases in construction costs that are outpacing inflation, rapidly growing catastrophe exposure and a challenging reinsurance market.
On March 20, 2024, State Farm sent a letter to Ricardo Lara, the commissioner of insurance for the California Department of Insurance, discussing the deterioration of the company’s capital position and how their financial condition can possibly be restored.
The letter, which is signed by Denise Hardin, president and CEO of State Farm, Mark Schwamberger, vice president and treasurer of State Farm and Keesa-Lu Mitra, State Farm general counsel, reads, in part:
“Although there haven’t been significant wildfire losses for several years, windstorm catastrophes in early 2023 and increasing trends in non-catastrophe water losses and liability claims (especially commercial lines and personal umbrella policies), without the additional premium needed to support those cost increases, have generated large underwriting losses. SFG has managed its policy growth by limiting writing in high-risk areas for many years, and more recently by ending all new policy sales. However, SFG’s risk exposure grew tremendously in the last few years, with construction cost inflation being a major driver.”
State Farm’s policyholder surplus decreased from $4.1 billion at the end of 2016 to $1.3 billion in 2023. The letter notes that recent trends have resulted in a surplus that is less than 50 cents for every dollar of risk, which makes the insurer’s financial strength less than a quarter of where it sat at the end of 2016.
In December, the California Department of Insurance approved a request by State Farm to raise premiums on their active homeowner policies in the state by 20%. However, the letter to Lara states that the full effect of the new rates on the company’s surplus position won’t come to fruition until March 2025, because the increases will be implemented throughout the next year as policies renew. Even with higher rates, State Farm said they needed to do more – in this case, by nonrenewing some policies – to reduce their overall risk exposure in California.
“We have been reluctant to take this step, recognizing how difficult it will be for impacted policyholders, in addition to our independent contractor agents who are small business owners and employers in their local California communities,” the letter to Commissioner Lara states. “Rebuilding capital, even with higher rates, will take some time. We are striving to minimize the impact of the necessary actions that must be taken.”