California’s Insurance Market in Turmoil as State Farm Pauses New Policies
The California homeowners insurance market is facing a severe crisis, as underscored by State Farm General’s recent announcement that it will not resume writing new policies in the state. This decision, despite a proposed 22% rate increase, highlights the growing challenges insurers face due to rising wildfire-related losses and existing regulatory restrictions.
State Farm’s stance, communicated in a letter to California Insurance Commissioner Ricardo Lara, follows months of strained relations between the insurer and the California Department of Insurance (CDI). Lara recently convened a meeting that included company executives, government officials, and consumer advocates to discuss the impact of Proposition 103, a 1988 law limiting rate hikes and mandating public hearings for increases exceeding 7%.
“This outdated regulatory structure has hindered insurers from actively reflecting the true cost of doing business in California,” Lara said at the meeting, reflecting the industry’s concerns. Despite these reservations, Lara’s office has yet to approve State Farm’s request for higher premiums. These delays have created uncertainty for homeowners, as State Farm has already started dropping 72,000 existing policies and threatened additional cancellations if the rate increase is denied. Mark Schwamberger, State Farm’s CFO, warned regulators that the company’s ability to maintain coverage during the impending fire season is “in jeopardy” without approval.
California homeowners now face an uncertain future. If significant insurers continue withdrawing, many will be compelled to rely on the California FAIR Plan, the state’s insurer of last resort, which provides only limited coverage at higher costs.
Similar struggles are evident in other disaster-prone states like Florida and Louisiana, where regulatory limitations and increasing risks have prompted insurer withdrawals, premium increases, and greater reliance on state-backed insurance programs. According to Richard Green, chair of the University of Southern California’s Lusk Center for Real Estate, the core problem is clear: “If the insurance commission prohibits insurers from charging a certain amount of money, insurance companies will say no, and then you’re left with people who self-insure.”
Consumer advocacy group Consumer Watchdog has countered State Farm’s demands, accusing the company of withholding vital financial data and seeking a “backroom bailout.” The insurers maintain that unless rates can be increased to reflect the growing risks, the system will become unsustainable.
With a decision from Lara imminent, homeowners, insurers, and policymakers are bracing for what could be a pivotal moment for California’s insurance market. Without a resolution, the exodus of insurers could accelerate, leaving millions with fewer, and costlier, coverage options.
