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State Farm Withdraws From California Homeowners, Commercial Property Market

This article originally appeared in Independent Agent.

Last week, State Farm announced that it will no longer be accepting new applications for homeowners or commercial property insurance in California. The decision took effect on May 28.

In 2022, State Farm was the largest homeowners insurer in the U.S. with a market share of 18.35% and more than $24 billion in direct premiums written, according to data from the National Association of Insurance Commissioners. The company cited the hard market, which has been referred to as the “hardest in a generation," as well as protecting the company's bottom line, as the reason for the withdrawal.

"State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market," said State Farm in a statement on Friday.

"It's necessary to take these actions now to improve the company's financial strength," the company added.

The decision does not affect State Farm's personal auto insurance coverage, which was a line that played an outsized role in the company's $13.2 billion in underwriting losses in 2022—almost three times more than what State Farm experienced in 2021 and its highest-ever underwriting loss.

California saw 7,490 wildfires in 2022, an increase from the previous year, according to data from the California government. The state has experienced over 7,000 wildfires per year on average for the past five years, CNN reported.

Further, from November 2021 to November 2022, the cost of construction materials rose more than 10%, according to Tüv Süd Global Risk Consultants Corp, which reported construction inflation has been averaging 12%-40% annually since the start of the pandemic in 2020.

Despite its withdrawal, State Farm claimed it would still work with the California Department of Insurance and lawmakers to build up market capacity in the state.

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

“State Farm independent contractor agents licensed and authorized in California will continue to serve existing customers for these products and new customers for products not impacted by this decision," the statement concluded.