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Why is State Farm Bailing on California?

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By Tim Gaspar

It’s not often that insurance becomes the topic of dinner table conversation (although it does in my home – which explains the frequent usage of air pods by my kids). But this week, insurance was everywhere. 

The news that State Farm, the largest insurer of auto and home insurance in California, actually the largest insurer of auto and home in the country, was not selling new home policies in California was a big deal. 

Why would a for-profit company like State Farm refuse to take on new customers? The answer is simple. Insurance companies in California are losing money.  

I don’t mean losing money like losing out on new opportunity, I mean losing money like what happens when you play blackjack at Circus Circus at 2 am after one of those drinks shaped like a boot, like actually losing money. 

But how is that possible? Insurance companies take in billions of dollars right? Yes but they are spending even more. Here is a quick list of the challenges in doing business in California are for insurance carriers:

– Disasters. Probably the most obvious culprit to just about anyone, California has a lot of disasters. Wildfires, floods, 2023 torrential rains, landslides, the Oakland A’s. In the 2017 and 2018 wildfires, insurance companies paid out about twice what they collected in premiums leaving a very memorable scar.

– Inflation. The cost of construction for homes in California has gone up about 20% year over year, while insurance companies have generally not been able to increase rates (see regulation below). As a business if your costs go up but your revenue doesn’t, you are going to run into a problem.

– Fraudulent Claims. Insurance companies have been inundated with fraudulent smoke claims, exaggerated property damage claims, claims for personal property that doesn’t exist, etc.

– California Regulations. Home and auto insurance companies must get any rate increases approved by the CA department of insurance. Over the last few years the department has been unwilling or slow (to the tune of years) to review filing requests, leaving insurance companies unable to raise rates. This sounds like a good thing for the consumer but as a result insurance companies have been unwilling to offer home insurance in many areas and in cases like AIG, and most recently State Farm, they have left the state entirely.

State Farm is the most high-profile company to refuse to offer new policies, but in the last year most other companies have cut back considerably on offering both auto and home insurance to new customers for the same reasons above. 

As an insurance person I wish I had a great solution for you but options really are limited. For now your best option is to contact your local legislator and tell them about your own insurance experience as Sacramento is one of the only places this will get resolved or it will actually get worse.

Tim Gaspar is the owner of Gaspar Insurance in Woodland Hills. To reach him call (866) 624- 4012 or visit gasparinsurance..com.


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