California’s largest property insurer, State Farm General, has announced it will stop writing new policies in the state, even if regulators approve its proposed 22% rate increase. This decision highlights a serious problem in California’s homeowners insurance market, as companies pull back due to rising wildfire losses and strict regulations.
In a letter to Ricardo Lara, California’s insurance commissioner, State Farm expressed its concerns. This comes after months of tension between the insurer and the California Department of Insurance (CDI). Recently, company leaders, state officials, and consumer advocates met to discuss Proposition 103, a law that limits rate increases and requires public hearings for hikes over 7%.
Lara acknowledged that the current regulatory system is outdated and makes it hard for insurers to adjust to the true costs of doing business in California. However, his office has not yet approved State Farm’s emergency request for higher premiums.
The stakes are significant. State Farm has already decided to drop 72,000 existing policies and warned that more cancellations could follow if its rate hike request is denied. The company’s CFO, Mark Schwamberger, stated that without approval, the insurer’s ability to provide coverage during the upcoming fire season is at risk.
Homeowners in California now face an uncertain future. If major insurers continue to withdraw, many may have to rely on the California FAIR Plan, which offers limited coverage at higher costs. There is some hope that surplus lines insurers, which are not bound by state regulations, could help fill the gap.
The situation in California is not unique; other states like Florida and Louisiana are experiencing similar challenges. Rising risks and regulatory hurdles have led to insurers leaving the market, increasing premiums, and a growing dependence on state-backed insurance programs. For instance, Florida’s Citizens Property Insurance Corp. now covers nearly 1 million policyholders, raising concerns about its financial stability.
Experts warn that unless California updates its insurance regulations, more companies may exit the market. Richard Green from the University of Southern California pointed out that if the insurance commission prevents insurers from charging adequate rates, companies will simply stop offering coverage, leaving many people to self-insure.
Consumer advocacy group Consumer Watchdog has criticized State Farm’s requests, accusing it of withholding financial information and seeking an unfair advantage. Despite this pushback, insurers argue that without the ability to raise rates to match increasing risks, the entire system could collapse.
With a decision from Lara expected soon, homeowners, insurers, and policymakers are preparing for a critical moment in California’s insurance landscape. If a compromise isn’t reached, the withdrawal of insurers could accelerate, leaving millions of residents with fewer and more expensive coverage options.