Major insurance company abandons homeowners in two major states

In response to escalating costs associated with natural disasters and legal proceedings, Farmers Insurance has joined the ranks of prominent insurers scaling back their operations in hurricane- and wildfire-prone states. The move is expected to have significant implications for homeowners in these regions, potentially leading to higher prices and limited coverage options.

Farmers Insurance has announced the discontinuation of sales for home, auto, and umbrella insurance policies under its own brand in Florida. These policies represent approximately 30% of the company’s total sales in the state. However, insurance coverage will continue to be available through other brands, including those catering to high-risk drivers. The decision affects around 89,000 policies, according to sources familiar with the matter.

Similarly, in California, Farmers Insurance will not fill the void left by rivals State Farm and Allstate, who recently ceased selling new home insurance policies. Instead, Farmers will limit new policies for one of its branded home insurance products to approximately 7,000 policies per month. This reduction aligns with the insurer’s projected monthly volume prior to recent market changes. Furthermore, earlier this year, Farmers had already halted new sales of another of its Farmers-branded home policies.

Farmers Insurance has attributed these changes to the need for risk exposure management amid rising inflation, severe weather events, and escalating reconstruction costs.

The decision by the company to withdraw its own-branded home insurance policies from Florida, as previously reported by The Wall Street Journal, adds to the challenges faced by the state’s insurance system, which heavily relies on a state-run insurer of last resort. Several prominent national carriers have already reduced their presence in Florida due to the series of devastating hurricanes in recent years. Farmers’ move may lead to increased reliance on the last-resort entity, placing additional strain on its financing.

The high risk of natural disasters in in the Southern state, coupled with soaring litigation costs, contributes to the state’s expensive and potentially inaccessible home insurance market. Floridians currently face average home insurance premiums of $6,000, surpassing the national average of $1,700, according to the Insurance Information Institute.

The decision to discontinue selling its own-branded auto policies in Florida is likely to reduce competition within the state. Nationwide, auto insurance costs have skyrocketed, and Florida has witnessed the most substantial increase in premiums compared to last year, with an average rise of $421, according to the Insurance Information Institute. The state’s average annual premium for full coverage auto insurance, at $3,121, is the second highest in the country.

California’s insurance regulators maintain that Farmers Insurance remains committed to the state, despite the restrictions on new home insurance policies. While the insurer will not offer an increased number of policies, it will continue to write new ones, ensuring a stable presence in the California market.

The exodus of insurers from California is partly attributed to state regulations, with the American Property Casualty Insurance Association criticizing the outdated regulatory system that hampers companies’ ability to secure necessary rate increases. To address insurers’ concerns, the California Department of Insurance has scheduled a public workshop to explore modifications to the current system, including a move away from relying solely on historical claims data for rate requests.

Consumer advocate group Public Citizen has accused the insurance industry of capitalizing on the crisis to generate further profits, highlighting the need for greater scrutiny and regulation.

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