Starting this summer, 30,000 California policyholders will be told they are being dropped by California’s largest home insurer — State Farm. It’s a move one insurance broker says is unprecedented in recent decades, as turmoil in California’s insurance industry continues.
The decision affects homeowners policies, rental insurance and other property insurance. The company will not send official notices until July, but some customers have been notified by their State Farm agents that they will be among the 30,000. Recent filings with the California Department of Insurance show where these nonrenewals will be concentrated. State Farm accounts for 8.7% of all home insurance policies in California, according to the latest data, which is from 2022.
Nonrenewal is not canceling: Customers affected by the decision will retain coverage until their current contract is up.
In some ZIP codes, less than 1% of policies will not be renewed. Others will be hit harder — in the 90272 ZIP code up the coast from Santa Monica, just under 70% of the 2,342 current policies will not be renewed, the filings show.
State Farm wrote in state filings that it would not renew policies “that present the most substantial wildfire or fire following earthquake hazards, or that are in areas of significant concentration.”
In Sonoma County, several communities that were devastated by the Kincade Fire — California’s largest wildfire of 2019 — will see as many as 40% of State Farm policies not renewed. Some areas of western Contra Costa County located near the 2019 Sky Fire, including Orinda and Lafayette, will see anywhere from 3.5% to 55% of State Farm policies not renewed.
In San Francisco, State Farm will not renew 44 policies, about half of which are located in the 94118 ZIP code spanning the Inner Richmond to Presidio Heights. But thousands of customers in the Santa Cruz Mountains are set to lose coverage in the near future, including 1,035 property owners in the 95033 ZIP code.
Since 2019, a California state law — authored by Insurance Commissioner Ricardo Lara when he was a state senator — has protected homeowners affected by wildfires from being immediately non-renewed by their insurance companies.
But the moratorium lasts for only a year after a declaration of emergency by the governor for a given area. So communities hit by fires from 2019 through 2022 are now vulnerable to nonrenewals due to their wildfire risk.
Other areas in State Farm’s nonrenewal plan have not experienced a fire yet but are known to have significant fire risk.
In Encino (Los Angeles County), where State Farm will not renew 40% of its more than 1,000 policies, many insurers have been limiting coverage, according to Michael Lemmon, owner of Los Angeles-based Broadway Insurance Services.
“That’s just one of those locations that almost all carriers see as being a wildfire zone or a territory that’s going to be, at some point, affected by wildfires,” Lemmon said. “It’s not always that it’s going to directly get caught on fire, but when cities are close in proximity to fire, there’s always ancillary damage: smoke, embers.”
Lemmon, an insurance broker for 15 years, said he had never heard of a company publicly announcing it would not renew so many policies at once. Others he’s spoken to say they’d never heard of such a thing in 30-year-long careers.
In a statement, State Farm said the nonrenewals were a “difficult but necessary” decision to maintain its long-term financial stability in California. One week after its March 20 announcement, AM Best — an insurance credit rating agency — downgraded State Farm General’s financial strength rating from excellent to fair and gave the company a negative outlook for its long-term issuer credit rating.
“State Farm General has taken numerous actions to ensure our financial strength allows us to continue to protect our customers. We have every intention of meeting our obligations to our customers and we are not satisfied with the trend of State Farm General’s financial rating,” the company said in a statement. “To ensure the long-term sustainability of State Farm General in California, we are being diligent in our efforts to turn around the financial stability of the company.”
In addition to the 30,000 personal property nonrenewals, State Farm also plans to stop offering commercial apartment insurance — which covers apartment building owners — in California. The 42,000 policyholders affected by the decision will be informed starting in August, according to the company.
State Farm stopped writing new homeowner policies in California last May. Allstate has done the same, while other insurers, including Farmers Direct (a Farmers Insurance subsidiary) and AmGuard (a Berkshire Hathaway subsidiary), have left the state entirely, leaving former customers searching desperately for new policies.
“I almost can’t handle the calls,” Lemmon said. “All of us here will be on multiple calls, and then there are still calls and leads coming in through every source: Yelp, Google, the website. Just every day, it’s hard to even get back to all of them at this point.”
Correction: A previous version of this story misstated which of State Farm’s credit rating outlooks was rated negative. It is the long-term issuer credit rating.