(Airdate: 2024-04-08) FOX - KTVU - California Insurance Changes

Published Date: 04/08/2024

California Insurance Shake-Up: State Farm’s Massive Non-Renewals and the Growing Strain on the FAIR Plan

California’s homeowners insurance market is once again in crisis. FOX KTVU reported on April 8, 2024, that State Farm, the state’s largest insurer, plans to drop tens of thousands of homeowner and rental dwelling policies later this year — a sweeping move driven by wildfire risk and market instability.

The announcement follows months of industry turmoil, with American National and other carriers also leaving the state. For many Californians, especially those in the Bay Area’s wildfire-prone regions, this latest development underscores just how fragile the insurance system has become.

1. The Announcement: Tens of Thousands of Policies Non-Renewed

According to KTVU’s report, State Farm will begin sending non-renewal notices to tens of thousands of policyholders across California, primarily in Contra Costa, Sonoma, Santa Clara, and Santa Cruz counties.

“It’s definitely unusual,” said insurance expert Karl Susman, speaking with KTVU’s Alex Savidge. “It’s certainly unusual to see the volume of non-renewal that we’re seeing from a carrier like State Farm.”

The affected areas are concentrated in high-risk wildfire zones, including communities such as Oakland, Orinda, and Santa Rosa — places where brush exposure and steep terrain make homes particularly vulnerable to fire damage.

“You’re going to see that the non-renewals cluster in those high brush exposure zones,” Susman explained. “If a carrier is trying to reduce their overall exposure, they’ll target the areas most likely to be affected by wildfire.”

2. Why This Is Happening: Insurers Battling 100-Year Events Every Few Years

While homeowners are understandably frustrated, Susman emphasized that the root of the problem lies in unprecedented risk frequency and outdated regulatory constraints.

“Carriers are having 100-year events happening every four, five, six years,” he said. “They’re grappling with how to properly spread that risk out.”

California’s unique geography and climate have always made insurance a challenge, but the scale and intensity of wildfires in the last decade have made many areas virtually uninsurable under existing models.

Compounding the problem, state regulations under Proposition 103 limit insurers from using forward-looking catastrophe modeling — the same kind of predictive data tools used nationwide to anticipate losses. Instead, they must rely on historical data, even though past losses no longer reflect today’s rapidly changing climate risks.

“They’re trying to stay solvent,” Susman noted. “They have to make sure they have enough money to pay claims, so they’re reducing exposure in the highest-risk areas.”

3. The Bigger Picture: Insurers Pulling Out Nationwide

Although California has drawn the most headlines, Susman pointed out that this is part of a national trend.

“It’s not isolated to California,” he told KTVU. “There are companies in every state that are now having capacity issues — meaning they’ve got too much exposure in areas that are seeing higher claims.”

That growing strain on insurers’ balance sheets has led to sweeping adjustments across the country. In Florida and Louisiana, hurricanes have caused similar insurer withdrawals. In Colorado and Texas, hail and wildfire have driven record losses.

California’s crisis, however, is the most visible — because of both the scale of its risk and the rigidity of its regulations.

4. For Homeowners: What to Expect Next

If you’re a State Farm customer, you may have already received a pre-non-renewal notice.

“If you’re going to be non-renewed, you’ve likely already been notified,” Susman said. “State Farm said they’d send out pre-non-renewal letters. So if you haven’t gotten one yet, chances are you might not be affected.”

Still, he urged all policyholders to contact their agents directly to confirm whether their property is on the non-renewal list.

“Agents absolutely know at this point who’s getting non-renewed and who isn’t,” he said.

Unfortunately, there’s no formal appeal process for these non-renewals under current law.

“As far as appealing goes, there is no process right now,” Susman explained. “But the state’s new Sustainable Insurance Strategy — once it’s fully rolled out — will change that.”

That strategy, introduced by Insurance Commissioner Ricardo Lara, aims to modernize the rate-setting process, allowing insurers to use more accurate data and helping prevent mass non-renewals in the future.

5. What This Means for the FAIR Plan

With tens of thousands of homeowners losing private coverage, the California FAIR Plan — the state’s insurer of last resort — is expected to face another surge in demand.

Susman warned that the system is under growing pressure.

“You’re just talking about State Farm,” he told KTVU. “Another carrier, American National, just announced they’re leaving five states entirely, including another 30,000 policies here in California.”

The FAIR Plan, he explained, is backed by all admitted insurers in California.

“Can they afford it? Yes, because they’re backed by every admitted insurance company in the state,” Susman said. “But the industry is petrified — because if there’s a large loss, they’re on the hook for their market share of those losses.”

That means a single catastrophic event could trigger multi-billion-dollar liabilities across the entire market, further discouraging private insurers from expanding in California.

6. A System at Its Breaking Point

The combination of rising risk, regulatory delay, and financial exposure has created a system teetering on the edge.

State Farm’s mass non-renewals alone will push tens of thousands of homeowners into the FAIR Plan, swelling its policy count to unprecedented levels.

But as Susman and other experts have warned, the FAIR Plan was never designed to function as a primary insurer — only as a safety net.

Without new reforms, that safety net could tear.

7. The Sustainable Insurance Strategy: Hope on the Horizon

There is, however, a potential turning point ahead.

California’s Sustainable Insurance Strategy, launched by Commissioner Lara in late 2023, represents the most ambitious insurance reform in decades. It includes:

• Allowing forward-looking catastrophe modeling to set rates more accurately
• Incorporating reinsurance costs into rate filings
• Accelerating approval timelines for insurer rate requests

If these changes succeed, they could entice major insurers — including State Farm and Allstate — to begin writing new policies again within the next 12–18 months.

“Once the new system is fully implemented, we should never be in this situation again,” Susman said.

8. What Homeowners Should Do Right Now

For homeowners worried about losing coverage, there are several immediate steps to take:

✅ Contact Your Agent

Confirm whether your property is on the non-renewal list. Don’t assume you’re safe just because you haven’t received a notice yet.

✅ Start Shopping Early

If you are affected, begin looking for new coverage immediately. Replacement options can take weeks to secure, especially in high-risk zones.

✅ Consider the FAIR Plan — with Caution

If no private carrier is available, the FAIR Plan provides basic fire coverage. But remember, it does not cover theft, liability, or water damage — you’ll need a Difference in Conditions (DIC) policy to fill those gaps.

✅ Stay Informed

Monitor updates from the California Department of Insurance at insurance.ca.gov.

9. A Broader Industry Reckoning

What’s happening in California is not just a local issue — it’s a warning for the nation.

From wildfire to flooding to extreme storms, insurers everywhere are grappling with a new climate reality where yesterday’s models no longer apply.

“This isn’t about California being too hot or too political,” Susman said. “This is about math. If the math doesn’t work, no business can operate.”

The next few years will determine whether California can modernize fast enough to retain a functioning private insurance market — or whether it will slide further into a quasi-public system dominated by the FAIR Plan.

10. The Bottom Line

State Farm’s non-renewal of tens of thousands of policies marks another inflection point in California’s ongoing insurance crisis.

For now, homeowners face uncertainty, limited options, and rising costs. But reforms are underway that could bring much-needed stability back to the market.

As Susman put it:

“The goal is to fix the system so this never happens again. Because right now, we’re in a situation that’s unsustainable for everybody — homeowners, insurers, and the state.”

Until that system is rebuilt, the message to homeowners is clear: act early, stay informed, and be ready for change.