As wildfires rip through the Pacific Palisades in Los Angeles County, California, hundreds have been left without homeowner’s insurance after State Farm cancelled their policies months ago, per a report.
According to a report from Newsweek, State Farm reportedly justified their actions by citing the growing cost of wildfires in the area, and the company’s attempt to reduce its own financial risk.
In a statement sent to the news outlet, a State Farm representative said the top priority for the company is the safety of their employees and customers who are currently in the path of the wildfires.
“Our number one priority right now is the safety of our customers, agents and employees impacted by the fires and assisting our customers in the midst of this tragedy,” the statement said.
However, in a report sent to California’s Commissioner of Insurance Ricardo Lara in March 2024, State Farm General Insurance Company — which is an almost exclusive California-only insurer — said the cancellation of policies was necessary because State Farm’s financial position has “severely deteriorated,” and the company is concerned about its financial well-being. State Farm’s policyholder surplus was around $2.2 billion and $1.3 billion at the end of 2022 and 2023, respectively, in stark contrast to the $4.1 billion in surplus at the end of 2016.
The report, which includes details on policy cancellations across California zip codes — including 90210 in Beverly Hills, and 90272 in the Pacific Palisades — shows there were 1,626 policies cancelled in the Palisades, while Beverly Hills had 698 policies cancelled.
“SFG’s risk exposure grew tremendously in the last few years, with construction cost inflation being a major driver. Taken together, these trends have resulted in surplus of less than 50 cents for every dollar of risk (as measured by net written premium) we face today, which makes SFG’s financial strength less than a quarter of what it was at year-end 2016,” State Farm executives wrote in the report.
The report then goes on to note that the increase in exposure forces the company to rely on reinsurance cover, which puts further pressure on the company’s surplus.
“The swift capital depletion of SFG is an alarm signaling the grave need for rapid and transformational action, including the critical need for rapid review and approval of currently pending and future rate filings. We take very seriously our responsibility to be there for customers who experience a claim, and our actions are with that goal at the fore. A financial failure of SFG will detrimentally impact the entire market, an outcome we are all trying to avoid.”
According to CNN: “Between 2020 and 2022, insurance companies declined to renew 2.8 million homeowner policies in the state, according to the most recent data from the California Department of Insurance. That includes 531,000 in Los Angeles County, where fires are currently raging. Some of those policies were not renewed by homeowners, according to an insurance industry trade group. But most of those policies were canceled by the insurers.”
