When State Farm announced it is pausing new applications for property and casualty insurance in California, Matt Clark was immediately concerned.
“We have all of our insurance with State Farm, and we fortunately don’t have any plans to move anytime soon but if you’re looking at getting into a new property or moving, there is the specter of being non-renewed by State Farm and suddenly you’re pushed into a marketplace that has lost the company writing 20% of new policies,” he said.
In addition to being a State Farm policy holder, Clark is also a lawyer in the insurance and bad faith industry at Bentley & More LLP law firm in Newport Beach.
Because Clark has been a State Farm client for many years, he receives discounts.
“If you have to now go to a new carrier because you want to move or because you happen to get non-renewed, it’s probably going to be quite a bit more expensive than the policy you are currently working under,” Clark told OrangeCountyLawyers.com.
Remaining carriers that are continuing to insure business and personal properties include Travelers, Farmers, and USAA but the reduction in competition is expected to impact pricing overall.
“It gives the insureds one less option for finding a reputable homeowner’s insurance company,” Clark said. “It would not remotely surprise me if premiums are harder or more expensive when looking in the open marketplace.”
In a May 26 statement posted online, State Farm said it would no longer accept applications for business and personal lines of property and casualty insurance because construction costs are outpacing inflation, catastrophe exposure is rising, and the reinsurance market has become more challenging.
“It’s necessary to take these actions now to improve the company’s financial strength,” the company stated. “We will continue to evaluate our approach based on changing market conditions.”
Personal auto insurance is exempt from the hold that became effective on May 27.
This isn’t the first time State Farm has paused new applications in California. The insurer announced a freeze after the 1994 Northridge Earthquake.
“We’ll see if this is another temporary pause or whether it’s something more permanent,” Clark said in an interview. “There have been strict limits on the amount they can raise their rate. So, carriers are complaining they aren’t allowed to sell insurance at a commensurate price for the risk of doing business in California.”
Only 362,000 acres were burned by wildfires last year compared with 2.5 million acres in 2021, according to Center for Disaster Philanthropy.
As a result, carriers, including State Farm, have stopped underwriting coverage in fire-prone areas, such as Malibu, Calabasas, Rancho Palos Verdes, Lake Arrowhead, and South Lake Tahoe.
“A lot of carriers have stopped writing coverage for fire prone areas,” Clark said. “A home in Lake Arrowhead is going to be extraordinarily difficult to find a company that will write a policy and then you’re defaulted either into paying a ton of money to a non-admitted carrier like Lloyds of London or going through the California Fair Plan.”
The California Fair Access to Insurance Requirements (FAIR) Plan provides basic fire insurance to at-risk property owners who can’t find an insurer to write their coverage. However, as a state entity, the Fair Plan is limited.
“The problem with the Fair Plan policy is they don’t cover as much,” Clark added. “They don’t cover as many risks. They don’t cover as many items of property and the limits are usually lower.”
*Note: On June 1, Allstate also confirmed to the San Francisco Chronicle that they stopped offering new homeowner insurance policies in California last year.
Juliette Fairley covers legal topics for various publications including the Southern California Record, the Epoch Times and Pacer Monitor-News. Prior to discovering she had an ease and facility for law, Juliette lived in Orange County and Los Angeles where she pursued acting in television and film.