State Farm not insuring new homes and businesses in California

OAKLAND, Calif. - State Farm General Insurance Company is no longer accepting new applications for homeowners insurance policies in California, citing rising construction costs and growing risk of catastrophic wildfires.

The decision by one of the nation’s largest insurance companies will not affect existing customers. It also does not affect personal auto insurance.But it will affect new homebuyers or those rebuilding following destructive wildfires.

"They’re already struggling to find insurance and then here we go again, it’s like that additional sting again," said Rachael Clark of Penngrove in Sonoma County. "It’s causing me a little alarm because is this going to be the first sign of the other insurance companies to follow?"

State Farm said it must manage risk based on historic increases in construction costs outpacing inflation, and the increase in widespread, destructive fires.

"It’s necessary to take these actions now to improve the company’s financial strength," State Farm said in a statement. "We will continue to evaluate our approach based on changing market conditions."

It is not the first insurance company to say no to insuring new homes and businesses in the state. Several others have stopped covering high risk areas in California.

Realtor Rachel Adams Lee covers the Sacramento and El Dorado Hills area and said while this decision came without warning, it’s a growing reality that coverage is becoming more limited in many parts of the state.

"I was pretty shocked for a couple reasons," she said. "One, my actual, personal home is insured by them [State Farm] and two, it’s who I refer all my clients to. Now we have to just be proactive and figure out the numbers to make sure it makes sense to move forward."

In order to get covered, it may require homebuyers participate in the FAIR Plan, the insurer of last resort.

"It’s a little more expensive and it’s a fire policy only," said Janet Ruiz with industry trade group Insurance Information Institute. "It will take people who can’t get insurance with another company and then you buy a separate policy – we call it a wraparound – that would give you things like theft, liability, etc."

Ruiz said California homeowners insurance costs are artificially low at an estimated $1,300 a year compared with states like Florida at more than $4,000 a year.

But with costs of everything going up and increasing intense wildfires, she said insurance companies have to bring in enough premium to pay out claims in order to stay solvent.

The California Department of Insurance said State Farm’s decision should not affect other companies.

"The factors driving State Farm’s decision are beyond our control, including climate change, reinsurance costs affecting the entire insurance industry, and global inflation," the Department of Insurance said in a statement.

But the move had made some question that phrase, "Like a good neighbor, State Farm is there."

"State Farm, you’ve been part of my life for over 35 years and many other families," Clark said. "I hope you really reconsider."