Singed By Wildfires, CA's Biggest Insurer Dumps The Golden State

CALIFORNIA — The Golden State's largest insurer will no longer sell policies to California homeowners and businesses, citing "rapidly growing catastrophe exposure" and the historic rises in construction costs.

In an announcing the move, State Farm said it would stop accepting new applications for homeowners insurance along with all business and personal lines of property and casualty insurance. State Farm will only sell new auto insurance policies in California. The insurer blamed catastrophic wildfires in recent years.

"We take seriously our responsibility to manage risk," State Farm said in a statement. "We recognize the Governor's administration, legislators, and the California Department of Insurance (CDI) for their wildfire loss mitigation efforts. We pledge to work constructively with the CDI and policymakers to help build market capacity in California."

State Farm said scaling back in California was a necessity to improve the company's financial strength but pledged to reevaluate the situation "based on changing market conditions." The move will not impact existing customers.

As The New York Times reports, insurance rates have skyrocketed in California in the wake of devastating wildfires during the 2017, 2018, and 2020 seasons that each became the most destructive in state history, killing nearly 200 people and causing tens of billions in damage.

While historic winter storms have quelled the drought and potentially staved off wildfires in the short term, forecasters predict California could be in for another rough fire season in the late summer and early fall. A similar scenario played out in 2017 after heavy winter rains and spring floods added fuel for devastating blazes when new growth dried out during the dry season.

A spokesman for the state's insurance department told the Times the agency is continuing efforts to mitigate climate-related disruptions to the insurance market, pointing to the Safer From Wildfires initiative and work to better control development in high-risk burn areas.

In a news release Tuesday, the CDI said State Farm's temporary pause was beyond its control and reiterated that current customers would not lose their insurance. Officials noted more than 100 insurance companies still offer residential policies in California, taking into account each home's wildfire risk score and other factors.

New reforms to the FAIR Plan — a pool of the state's insurers that provides basic fire coverage to high-risk properties unable to get traditional insurance policies — will expand coverage options later this year to keep pace with increased costs, raising the coverage ceiling to $20 million for businesses, homeowner associations and condos that cannot secure coverage through the normal marketplace. Homeowners who are out of options may be able to get up to $3 million in coverage.

"The California Department of Insurance is focused on what we can control — the safety of our homes and communities," CDI officials said Tuesday. "We have been here before [and] after major wildfires. What's different is the actions that we're taking — the first-ever insurance discount program for wildfire safety and unprecedented wildfire mitigation investments from the State Legislature and Governor."