Farmers Insurance, California’s second-largest insurer, announced that it will not be accepting any more new business beyond its previously planned capacity for 2023.
This decision comes as State Farm and Allstate, two major insurers, have halted the writing of new policies in the state
Farmers Insurance stated that it is actively working with the California Department of Insurance and other stakeholders to improve property insurance availability in the state, considering factors such as inflation, severe weather events, and rising reconstruction costs.
While State Farm and Allstate have chosen not to write new policies in California, Farmers Insurance and over 100 other companies will continue accepting new business. The California Department of Insurance confirmed that Farmers has been consistently writing an average of 7,000 new policies per month and expects this figure to remain relatively stable. However, the decision by Farmers underscores the significant demand for new policies and the challenge of handling the influx of new business.
Rex Frazier, President of the Personal Insurance Federation of California, explained that insurers must maintain a certain amount of capital to support the new policies they underwrite. If they lack sufficient capital, they cannot accept new business. Frazier believes that with Farmers Insurance unable to accept additional new policies despite holding a 14.9% market share, other carriers with smaller shares, such as CSAA, Liberty Mutual, and Mercury, may face similar limitations.
Frazier anticipates that consumers seeking coverage may turn to the California FAIR Plan
As an insurer of last resort, the FAIR Plan provides coverage for those unable to obtain it from commercial insurers. Frazier highlighted the need for insurers to consider their liability through the FAIR Plan, as carriers may be assessed fees based on their market share if the plan exhausts its funds to pay claims.
Insurers are currently grappling with increased risks and costs due to inflation, climate change-induced weather events, and the expansion of development into rural areas. The growing exposure to the wildland-urban interface, where wildfires pose a greater threat, further exacerbates the situation. The rising costs of rebuilding properties, coupled with higher prices and stricter terms from reinsurance companies, present additional challenges for commercial carriers.
As a result, California consumers may have to seek coverage from lesser-known companies instead of industry giants like Farmers and Allstate. The California Department of Insurance is offering assistance to consumers through its consumer service experts, a hotline, and an online home insurance finder. The department aims to help residents navigate their insurance options effectively.
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