State Farm announced late last week that it will halt the sale of new home insurance policies in California, citing wildfire risk and inflation of construction costs. Starting Saturday, May 27, California’s (and America’s) biggest home insurer by premium, will not accept insurance applications for business and personal lines property and casualty insurance. Existing policies will not be affected.
"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," the insurance giant said in a statement on Friday. "It's necessary to take these actions now to improve the company's financial strength," the company added. The measure is the latest development in what has been a years-long issue in California: insurance companies dropping homeowners because of the growing risk of wildfires.
State Farm is not the first insurance company to halt new policies in the state. AIG announced it was leaving the state in January, and non-renewals are expected to begin issuing for their policyholders later this year.
Current State Farm customers’ policies will not be affected, but make sure you do not miss paying your premium! And: expect an increase at the time of your renewal. Like many of the other insurance companies, State Farm applied with the Insurance Commission for a large increase, but due to their financial security, were only approved for up to 7%. If you’re a customer of any other insurance company, brace yourself for what could be up to a 24% increase in your policy at renewal time.
What does this mean to new home buyers across the state? It’s more important than ever to shop around for home insurance. It’s also critical you read the fine print in your policy. Companies like All State, Progressive, Mercury, Farmer’s, and Geico are still writing policies, but sometimes these are written with other carriers who may be non-admitted carriers who aren’t required to follow the same state regulations as admitted carriers (meaning if the company fails, the state is not required to step in and make payments on claims.) You’ll want to make sure your policy is written by an admitted carrier. https://www.insurance.ca.gov/0250-insurers/0300-insurers/0100-applications/upload/AdmittedInsurers.pdf. All lenders will require insurance to close escrow, so start your search the moment you identify your home to avoid any delays in the purchase process.
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