Due to rising expenses associated with catastrophic occurrences and building projects, the State Farm insurance company stated recently that it would no longer be accepting new applications for home and business insurance in California.
"State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market," according to a company statement.
According to CBS News, the new rule applies to both commercial and individual policies, which went into force this Saturday, May 27. State Farm claimed it would not affect its personal vehicle insurance plans.
Customers who currently have property and casualty insurance with State Farm will continue to be served by the company's independent contractor agents and will be able to file claims for insured property. There have been no notices of nonrenewal from the corporation as of yet.
Wildfires Becoming More Frequent and Severe
Over the previous five years, wildfires in California have averaged over 7,000 each year, as reported by CNN. Based on statistics from the governor's office, these have burned over 2 million acres per year on average. Scientists and Californian officials agree that the climate issue is to blame for the state's more severe fire seasons.
State Farm was the biggest property and casualty insurance in California in 2021. It collected nearly $7 billion in premiums that year but lost over $4 billion, according to statistics from the state.
As a result of the rising frequency and severity of wildfires and new state laws, State Farm is not the only insurer to withdraw or severely restrict property insurance in California. The Wall Street Journal reported in 2022 that American International Group (AIG) informed thousands of Californians that their policies would not be renewed.
Under a new state policy passed last year, insurers are now required to reward customers who take measures to decrease fire risk to their homes and companies with lower premiums.
An Effort to Boost Company Finances
The California Department of Insurance (CDI) states that homeowners' insurance must pay for reasonable and necessary living expenses like shelter and food in case of a covered loss. It must also cover damages to the insured property and any other buildings or structures on the property, the cost to remove trees, shrubs, and debris, and any water damage that was not caused by a flood.
The firm has indicated that its new strategy may be revised in the future depending on the state of the economy. It stated it would maintain its partnership with CDI and monitor market conditions. "It's necessary to take these actions now to improve the company's financial strength," the company said.
CDI said in a statement obtained by CBS News that State Farm's decision was the product of external reasons outside the company's control and would not influence the actions of other insurance providers in the state.
