In a move that exacerbates California's already dire homeowners' insurance crisis, State Farm General Insurance has announced that it will not renew policies for 72,000 property owners across the state. The insurance giant revealed on Wednesday that it plans to cease renewing homeowner insurance policies for 30,000 customers, including condominium owners. Additionally, State Farm intends to discontinue offering commercial apartment policies, affecting the 42,000 currently in place.

While the number of affected individuals is significant, State Farm emphasized that the cuts represent less than 3% of its policies in the state. In a statement, the company stated, "This decision was not made lightly. State Farm takes seriously our responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws. It is necessary to take these actions now."

The California Department of Insurance expressed dissatisfaction with the cancellations, emphasizing its role in holding insurance companies accountable. Deputy Insurance Commissioner Michael Soller remarked, "State Farm General's decision...raises serious questions about its financial situation—questions the company must answer to regulators."

This development from State Farm coincides with the increasing difficulty Californians face in insuring their homes and commercial properties. Insurers have been raising rates, limiting coverage, or stopping policies altogether in areas prone to natural disasters, citing reasons such as high inflation, catastrophe exposure, reinsurance costs, and outdated insurance regulations.

State Farm reported a net loss of $6.3 billion in 2023, compared to a net loss of $6.7 billion the previous year. As options shrink, many Californians have turned to the FAIR (Fair Access to Insurance Requirement) Plan, a limited coverage option funded by insurers operating in California.

However, the enrollment surge in the FAIR Plan is straining the state insurer financially. It now faces the potential loss of $311 billion, a significant increase from $50 billion in 2018. During a legislative hearing, Victoria Roach, president of the FAIR Plan Association, issued a warning about the insurer's financial instability in the face of a catastrophic event.

Allstate, one of the country's largest insurers, has resumed writing new policies through its website, albeit at higher costs. State Assemblymember Jim Wood expressed concern, stating, "We're one bad fire season away from complete insolvency—it feels like a big gamble in many ways."

In response to the crisis, Insurance Commissioner Ricardo Lara has proposed new rules that would allow insurers to raise rates to cover reinsurance costs and projected losses from fires, while also requiring broader coverage in high-risk areas. These proposals aim to reduce reliance on the FAIR Plan and slow the increase in premiums. While they have gained support from some industry trade groups, they face criticism from consumer advocates, including Consumer Watchdog.

State Farm has declared its commitment to working with Lara, the governor's office, and policymakers to pursue these reforms and create an environment where insurance rates better align with risk. Insurance expert Karl Susman urged the Department of Insurance to expedite the implementation of new regulations to prevent more companies from leaving the state.

State Farm plans to initiate the cancellation of policies during the summer, starting with homeowner insurance on July 3 and commercial properties on August 20. The situation remains critical, and Californian homeowners and property owners continue to grapple with the challenges posed by the rapidly evolving insurance landscape.