Last Friday, State Farm General Insurance Company, the provider of homeowners insurance in California, announced that it would stop selling new policies to homeowners in the state, Reuters reported.
In a press release on Friday, State Farm said its decision was due to “historic increases in construction costs” that are outpacing inflation. It also cited “rapidly growing catastrophe exposure” and the challenges in the reinsurance market.
The company explained that the move is necessary to improve its financial strength.
California homeowners who lose their homeowner insurance can purchase a new policy from the state’s FAIR Plan, a privately-run, high-risk insurance pool established by the state.
State Farm stopped accepting new applications from California homeowners on May 27. The company said the decision will have no impact on Californians’ personal auto insurance with State Farm.
State Farm’s decision to stop providing homeowner’s insurance will be a blow to a state where many homes are destroyed each year in wildfires that occur in the summer and fall.
In late April, California suffered the first major fire of the 2023 season which burned over 100 acres.
According to experts, California’s heavy rainfall this winter resulted in grass and scrub growing heavily. This new growth will dry out by summer, providing a thicker and larger fuel bed for the wildfire season, Reuters reported.
In recent years, other insurance companies have pulled back from selling homeowner’s insurance in the state, including Liberty Mutual.
But State Farm was the largest provider of homeowner’s insurance in California, which will cause trouble for homeowners in the state.
Non-renewables of policies initiated by insurers in California during 2021 increased 30 percent to 241,662 compared to 2020, according to the California Department of Insurance.
The state’s FAIR Plan policies made up approximately 3 percent of the residential insurance policies in California in 2021.