California’s homeowners insurance market is facing another crisis. On March 21, 2024, State Farm, the state’s largest property insurer, announced it will not renew over 72,000 policies across the state. This decision, aimed at ensuring the company's long-term sustainability, adds to the turmoil caused by rising premiums, shrinking coverage options, and increased reliance on the state’s FAIR Plan.
1. The Announcement: 72,000 Policies Dropped
State Farm’s decision to drop over 72,000 policies affects both residential and commercial customers:
- 30,000 homeowner, rental dwelling, and property policies
- 42,000 commercial apartment policies
While this accounts for roughly 2% of State Farm’s total policies in California, the impact is significant, especially in areas already struggling to find private coverage. The company cites escalating reinsurance costs, catastrophic weather events, and inflation as primary factors behind this move.
2. Who’s Affected — and When
State Farm’s decision primarily impacts:
- Homeowners and landlords with single-family or small rental properties
- Commercial apartment property owners with larger buildings or complexes
Affected customers will receive non-renewal notices well before their policy expiration dates. The California Department of Insurance (CDI) is working with State Farm to ensure customers are notified early and assisted in finding alternative coverage.
3. The Official Reason: “Ensuring Long-Term Sustainability”
State Farm’s public statement pointed to several factors contributing to this decision:
- Historic wildfire losses and other climate-driven disasters
- Escalating building material and labor costs
- Rising reinsurance premiums
- An outdated regulatory system that restricts the use of modern risk modeling tools
In short, the company is trying to prevent deeper financial losses in a market where the math no longer adds up.
4. A Familiar Pattern: Another Retreat from the Market
State Farm’s move is part of a broader trend in California. In May 2023, the company announced it would stop writing new homeowners, rental, and commercial property policies in California. Less than a year later, it has dropped over 72,000 existing policies.
State Farm joins several other insurers, including Allstate, Farmers, Nationwide, and USAA, which have scaled back operations or imposed stricter underwriting requirements. As a result, fewer choices and higher premiums await homeowners.
5. Why It Matters: A Market in Crisis
California’s insurance market is in a “hard market,” characterized by:
- High premiums
- Limited availability
- Tighter underwriting
With fewer insurers, competition dwindles, driving prices higher. The growing reliance on the FAIR Plan, California’s “insurer of last resort,” is a direct consequence of these market conditions. As of early 2024, the FAIR Plan covers over 350,000 homes — a number that continues to rise with each insurer withdrawal.
Insurance expert Karl Susman described the situation as the “new normal” until California modernizes its regulatory system.
6. Consumer Advice: “If You’ve Got Coverage, Hold On Tight”
For homeowners already insured, the best advice is clear: protect your existing coverage. Brokers across the state report that securing new homeowner policies, especially in wildfire-prone areas, is increasingly difficult. If you are insured:
- Avoid missed payments or lapses: Even a single missed renewal could make you ineligible for reinstatement.
- Review your coverage annually: Ensure your policy reflects the current rebuilding costs and risks.
- Work with a licensed insurance broker: A broker can help you explore private alternatives and monitor market changes.
7. What the State Is Doing
The California Department of Insurance (CDI), led by Commissioner Ricardo Lara, has been working closely with State Farm to manage the fallout from this decision. The department has assured affected policyholders that help is available and encouraged them to contact the CDI for assistance.
Additionally, the CDI is advancing its Sustainable Insurance Strategy, which will allow insurers to use forward-looking catastrophe modeling to better price wildfire risks. This reform is intended to stabilize the market and encourage more insurers to reenter the state.
8. The Bigger Picture: A System at Its Breaking Point
State Farm’s latest move highlights the fragility of California’s insurance market. Proposition 103, the 1988 law that regulates insurance rates, was designed to protect consumers. However, many experts argue it is outdated and no longer fits the realities of a climate-driven risk environment. This disconnect has led to a vicious cycle:
- Insurers can’t charge enough to cover projected risks.
- They stop writing or renewing policies.
- The FAIR Plan expands, but with higher rates and limited coverage.
Unless California’s regulatory framework is updated, the state could face an ongoing insurance availability crisis.
9. What Homeowners Should Do Now
If you receive a non-renewal notice from State Farm or another insurer, follow these steps:
- Contact Your Agent Immediately: Ask about private-market alternatives and whether independent brokers can access regional or specialty carriers.
- Apply for the FAIR Plan: If no private options are available, apply for the California FAIR Plan and consider purchasing a Difference-in-Conditions (DIC) policy for additional coverage.
- Document Mitigation Measures: Keep records of any wildfire mitigation, home-hardening upgrades, or defensible-space certifications to help when seeking new coverage.
- Stay Informed: Follow updates from the Department of Insurance and local news outlets to stay on top of changes in policy conditions and market participation.
10. The Bottom Line: A Transitional Year
State Farm’s decision to drop 72,000 policies is a sign of the systemic issues within California’s insurance market. While regulatory reforms like the Sustainable Insurance Strategy offer hope for the future, homeowners should prepare for a transitional period. As new modeling rules and regulations roll out, more insurers may return, but the path to stability will take time.
For now, homeowners should prioritize maintaining their current coverage and stay proactive in managing their insurance options. As ABC10 advised, “If you’ve got new coverage, take it. Even if you overlap for a couple of months — just have it. Because finding coverage right now is the hardest it’s ever been.”
