(Airdate: 2024-06-06) FOX - KTVU - Some Californians Can Keep Home Insurance, BUT...
Published Date: 06/06/2024
State Farm’s Partial Return to California: Progress or PR?
In a move that made headlines across California, State Farm — the state’s largest home insurer — announced it will allow some homeowners to keep their coverage after dropping tens of thousands of policies earlier this year.
At first glance, that sounds like welcome news for a state still deep in an insurance crisis. But as FOX KTVU’s Bailey O’Carroll reported, there’s a major catch:
State Farm will renew certain homeowner policies — but will no longer cover fire damage.
It’s a partial reversal that’s being hailed by some as a step in the right direction, while others call it a bandage on a much deeper wound. Insurance analyst Karl Susman joined FOX to explain what this really means for California homeowners — and why it’s only a small step toward solving a much bigger problem.
A Glimmer of Hope — with Big Limitations
In Orinda, a picturesque East Bay town surrounded by oak-covered hills, residents like Annie Bolen have been living under the shadow of non-renewal notices.
She had her policy canceled by Farmers Insurance nearly a year ago and has struggled ever since to rebuild the coverage she lost.
“My reaction was horror,” Bolen said. “I thought I had escaped that.”
To fill the gap, she now carries two policies:
- Fire coverage through the California FAIR Plan, the state’s insurer of last resort.
- Supplemental coverage from another private insurer for theft, water damage, and liability.
Her premiums have nearly quadrupled — even as her overall coverage has gone down.
“Something that used to be affordable and complete,” she said, “is now expensive and fragmented.”
And that’s where State Farm’s announcement enters the picture.
What State Farm Is Really Offering
State Farm says it will begin renewing a limited number of existing policies, primarily for customers whose homes meet strict safety and risk criteria. But those policies will exclude coverage for wildfire damage — the very peril that has made California’s insurance market so unstable.
“They won’t do fire,” Susman explained. “Well, that’s the major risk. There hasn’t been a fire in Orinda, but it’s such a high-risk area.”
In practice, this means affected homeowners will have to pair their new State Farm policy with a separate FAIR Plan fire policy, effectively splitting their coverage into two pieces.
For consumers, that’s an administrative headache and a financial one. FAIR Plan policies tend to be expensive, and the process of obtaining supplemental coverage can be confusing.
Still, Susman sees this limited reinstatement as a small but meaningful signal.
“It’s a sliver of policy,” he said. “Definitely helpful for people that are with State Farm and have a house within the right parameters. But this doesn’t change the actual crisis in California.”
Understanding the FAIR Plan — The Insurer of Last Resort
For homeowners unfamiliar with it, the California FAIR Plan was created in 1968 to ensure basic fire coverage for properties that couldn’t get insured elsewhere. It’s not a state-run company, but a shared risk pool funded by all admitted insurers operating in California.
FAIR Plan coverage is bare-bones — it protects only against specific perils like fire, lightning, and internal explosions. It doesn’t cover theft, water damage, or personal liability.
To achieve full protection, homeowners must purchase a “wraparound” policy from a private carrier to supplement it — a process that often leads to higher overall premiums.
“Now what they’re going to be able to do,” Susman explained, “is purchase the California FAIR Plan. They can purchase it either directly or, if their agent is appointed with the FAIR Plan, they can offer coverage through them.”
This arrangement has become the default option for hundreds of thousands of Californians. But as FAIR Plan enrollment grows, so does pressure on the state to find more sustainable solutions.
Why State Farm’s Move Matters
Even though the coverage is limited, State Farm’s announcement still represents something significant:
It’s the first major insurer to show any willingness to re-enter the California market, even partially.
That could be a sign that the broader regulatory reforms championed by Insurance Commissioner Ricardo Lara and Governor Gavin Newsom are starting to restore confidence in the marketplace.
Susman cautiously welcomed the development:
“This is a step in the right direction,” he said. “But it doesn’t change what’s happening to anyone else who can’t find insurance in the first place.”
He emphasized that until insurers can once again write full coverage — including fire — California’s crisis is far from over.
The Real Problem: Fire Is the Risk That Defines California
California’s biggest insurance problem is, ironically, the one it can’t avoid: wildfire.
Over the past decade, wildfires have destroyed tens of thousands of homes and cost insurers billions in payouts. The 2017 and 2018 fire seasons alone wiped out more than 20 years of underwriting profit in just 24 months.
Faced with mounting losses and restrictions on how they can price risk, insurers began pulling back. Today, nearly every major carrier — from State Farm to Allstate to USAA — has either paused writing new policies or sharply reduced exposure in high-risk areas.
The result:
- Homeowners in urban areas pay more.
- Rural and foothill homeowners struggle to find any coverage at all.
- FAIR Plan enrollment has soared to record highs, straining the system.
“We’re now in a place where companies are protecting themselves,” Susman said, “and consumers are left piecing together their own protection.”
The Regulatory Catch-Up
California’s insurance rules, established under Proposition 103 in 1988, were designed to prevent price gouging — but they haven’t kept pace with today’s risk environment.
Insurers can’t use forward-looking wildfire models or fully account for reinsurance costs (the insurance that insurers buy to protect themselves from catastrophic loss).
That’s where the Sustainable Insurance Strategy — Lara’s modernization plan — comes in. It’s designed to:
- Allow more accurate pricing using catastrophe models.
- Reward homeowners who harden their homes against wildfire.
- Require insurers to write policies in higher-risk zones in exchange for regulatory flexibility.
State Farm’s cautious return could be an early indication that these upcoming reforms are restoring some optimism — or at least signaling a thaw in what has been a frozen market.
“We’re not out of the woods,” Susman warned, “but it’s movement. And movement is what this market needs.”
The Human Impact: When “Partial Coverage” Isn’t Enough
For many Californians, this piecemeal system feels like a cruel compromise.
Bolen, the Orinda homeowner, is grateful to have some insurance — but the financial strain has been real. Her premiums have quadrupled, her coverage is fragmented, and her peace of mind is eroding.
“I want to go back to having one insurer for a fair price that provides the coverage I need,” she said. “That doesn’t seem like too much to ask.”
Her experience highlights what’s at stake: insurance isn’t just a bureaucratic formality — it’s what allows people to buy homes, take out loans, and rebuild after disaster. Without it, California’s housing stability — and even its economy — is at risk.
Why “Non-Fire Coverage” Matters Less Than It Seems
Some might wonder why State Farm’s new offering — homeowners coverage minus fire protection — matters at all. After all, if it doesn’t cover wildfire, what’s the point?
The answer lies in market signaling.
By cautiously re-engaging, even in a limited way, State Farm is signaling that it’s open to operating in California again — provided the state continues to modernize its regulations.
It’s a vote of “conditional confidence.”
And given that State Farm covers nearly one in five homes in the state, even a small policy reversal carries symbolic weight.
“It shows there’s willingness,” Susman explained. “That’s the first step toward rebuilding a functioning marketplace.”
What Homeowners Can Do Now
While broader policy changes unfold, homeowners still need to protect themselves. Susman offered several practical steps Californians can take in the meantime:
- Work with an independent broker. They can access multiple carriers, including surplus and specialty markets.
- Document home-hardening efforts. Photos and receipts for defensible space, fire-resistant roofs, and other mitigation can improve eligibility.
- Pair FAIR Plan with a wraparound policy. This ensures you’re covered for theft, water, and liability — not just fire.
- Avoid small claims. One or two minor claims can trigger non-renewal. Save insurance for catastrophic losses.
- Stay informed about upcoming reforms. The state’s regulatory landscape is evolving rapidly, and new relief measures are likely coming by early 2025.
“Right now,” Susman said, “knowledge is power. The more you know about your options, the better you can protect yourself.”
A Sign of Things to Come?
State Farm’s partial return doesn’t fix California’s insurance crisis — but it does mark a turning point.
After years of contraction, the market may finally be showing early signs of stabilization. Other insurers are watching closely, waiting to see how the reforms play out and whether regulatory modernization can truly restore balance.
If the state can deliver a fair, transparent framework that supports both consumers and carriers, more companies may follow State Farm’s lead — and possibly offer full coverage again, fire included.
Until then, homeowners like Bolen remain caught between optimism and uncertainty.
“We’ve been waiting for good news,” she said. “I just hope this really is the start of something better.”
Final Thoughts: A Step, Not a Solution
California’s insurance crisis wasn’t created overnight — and it won’t be solved overnight either.
State Farm’s move is a symbolic first step — a test case for what might be possible under the state’s new regulatory approach. But as Susman cautioned, until insurers can fully cover wildfire risk without going broke, the crisis remains unresolved.
Still, for those lucky enough to qualify, keeping at least part of their policy feels like progress.
And for everyone else, it’s a reminder that change — however slow — is finally happening.
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