State Farm not renewing some 72,000 policies when they expire due to risk

State Farm, California's largest property and casualty insurer, selling to one in every four homes, has announced that it will not renew some 72,000 policies when they expire. The reason: in State Farm's opinion, those homes are too risky to insure.

State Farm had already quit selling new policies. These non-renewals will add more turmoil and fear as the worsening insurance desert whips home buyers, home sellers, home builders, banks, and mortgage companies in a major way.

In an email to some policyholders, State Farm representatives said those not being renewed represent about 2.5% of the highest-risk property insurance policies. The non-renewals by the company begin July 3, 2024. "This is not a choice the company wanted to make, but the CA insurance environment created by Prop. 103 and other challenges in the market have made it necessary."

From the air, the fourplex in Hayward that Alexander Lee's family owns, has been insured by State Farm for almost four decades. This week, State Farm called him with a shocker: his policy will not be renewed. "I said it doesn't make no sense to me because been with you guys for 38 years, no claims. Am I the only apartment or is it gonna be more apartments? ‘Oh,' she says, 'It's gonna be California wide.' I said really? California wide?" said Lee.

Harvey Rosenfield, founder of Consumer Watchdog and author of insurance Proposition 103, says State Farm's last big rate increase came last week. "That rate increase was approved assuming that they'd sell insurance policies who need it and now they're canceling more people," said Rosenfield.

David Shaffer is an insurance broker who sells from a wide range of companies. "This is definitely the worst it's ever been in my 40 years in this industry. I never seen it as bad as it is today," said Shaffer.

(Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)

He says even the insurer of last resort, the California FAIR Plan, flooded with desperate new customers to pay very high prices for marginal non-high quality policies is, itself, shaky. "The California FAIR Plan itself has announced that it is not prepared for a catastrophe in the state of California," said Shaffer.

Insurers insist that they be able to predict future losses and set rates using sophisticated computer models that predict future losses, instead of being based on outdated and obsolete past claims currently required. 

"Companies would like the ability to make their case to the state. Right now it's illegal under California law for a company to come in with a model that shows, if they do write in higher risk areas how that would affect their future expected claims cost," said Rex Frazier of the Personal Insurance Federation.

SEE ALSO: State Farm homeowner insurance rates to skyrocket

But at what cost to consumers? "I have seen premiums, where clients have not been renewed, that the cost of a new policy is five times what it was before," said Shaffer.

It is all so perplexing. "Zero claims is, I mean, totally ridiculous to get canceled," said Lee.

This is as serious as it gets for the California and national economy. We will continue to follow these consumer news developments. 


California approves State Farm's request to increase rates

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