State Farm, California’s largest insurer, has announced a significant change that will impact 72,000 homes and apartments starting this summer. This move is expected to affect housing costs for residents already grappling with the aftermath of recent destructive wildfires. As a key player in the California home insurance market, State Farm's decision to discontinue policies for 30,000 homes and 42,000 apartments is attributed to rising costs, increasing catastrophe risks, and outdated regulations.
The company emphasized the careful consideration that went into this decision, highlighting its commitment to maintaining adequate claims-paying capacity for customers and complying with financial solvency laws. This move follows a similar decision last year when State Farm decided not to issue new policies in California for similar reasons.
The California Department of Insurance has raised concerns about State Farm's financial health, calling for accountability from the insurance company. Deputy Insurance Commissioner Michael Soller stressed the importance of State Farm's strategy to meet its obligations to California customers. However, it remains unclear whether the department will launch an investigation into State Farm's actions.
Consumer Watchdog founder Harvey Rosenfield raised questions about the timing of State Farm's announcement, coming shortly after the approval of a 20% premium increase. Rosenfield believes that the non-renewals warrant a review, and the insurance commissioner has the authority to open an investigation into the matter.
Independent broker Karl Susman suggested that the properties being dropped are likely in wildfire-prone areas where standard coverage is difficult to obtain. This could leave property owners with no option but to turn to the California FAIR Plan, a last-resort insurance pool that can be much more expensive than standard policies.
State Farm stated that the non-renewals would affect just over 2% of its California policies, but did not specify the locations or criteria used for non-renewal. The company indicated that the cancellations would start on July 3 for home, business, and rental dwelling policies, and on August 20 for commercial apartments.
In response to the upcoming changes, Soller encouraged those affected to contact the insurance department for assistance in finding new coverage. He also mentioned that the department is working towards enacting the state's largest insurance reform in over 30 years by December 2024, aiming to improve choices for all Californians beyond the FAIR Plan.
However, industry expert Susman expressed concerns about the timing of these regulatory changes, noting that consumers need immediate relief. Rosenfield criticized the insurance commissioner's office for being too lenient towards the industry's demands, suggesting a need for more decisive action to address the challenges faced by State Farm's customers.
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