SACRAMENTO, Calif. — As of this week, Farmers is the latest insurance company to change how it does business in California amid rising costs, an uncertain regulatory environment and a volatile natural environment.
“With record-breaking inflation, severe weather events, and reconstruction costs continuing to climb, we are focused on serving our customers while effectively managing our business,” a spokesperson for Farmers told ABC10 Thursday. “Effective July 3, Farmers will limit new homeowners insurance policies in California to a level consistent with the volume we projected to write each month before recent market changes.”
This change comes just a little over a month after State Farm announced it would no longer offer new homeowners insurance policies, and Allstate stopped offering new home insurance back in November.
Typically, unless someone owns their house outright, insurance isn’t optional; having a mortgage requires homeowners insurance. Since people looking for new homeowners insurance policies now have fewer options, more are flocking to Farmers.
Specifically, sources tell ABC10 that Farmers is now limited to 7,000 new homeowners insurance policies per month in all of California, as the company tries to limit its risk exposure. To be clear, as Farmers stated above, this is the volume of new homeowners policies it already anticipated writing before State Farm made its announcement in late May. What’s noteworthy is the company choosing to cap that number in order to hold steady, amid an influx of people seeking new policies with them.
In other words, the more companies that limit new policies or stop writing them altogether, the more the market – customers and insurance companies alike – feels the squeeze. California still has about 115 companies offering home insurance, a California Department of Insurance spokesperson told CalMatters.
“We are working diligently with the California Department of Insurance and others interested in improving the availability of property insurance in the state,” a Farmers spokesperson told ABC10.
Additionally, ABC10 obtained an internal memo from Foremost, a company owned by Farmers. Effective Aug. 1, it says Foremost will no longer accept new business for certain specialty properties, including landlord mobile home, landlord condo, vacant properties and renters.
“Catastrophic storms, increasing costs for repairs and the overall state of the economy have significantly impacted the insurance industry. In order to address these challenging trends, while continuing to serve our customers, we’re announcing a temporary change in California,” the memo said, explaining the move.
Changes are also coming for all Foremost property products, the memo said.
“Effective October 15, 2023, we will be non-renewing all policies that do not meet our FireLine® new business eligibility guidelines, which represent greater wildfire exposure. Note: These non-renewals will not include policies with the FAIR Plan Companion endorsement,” the memo said. “Non-renewed properties may be eligible for a fire insurance policy from the California FAIR Plan.”
ABC10 reached out the California Department of Insurance (CDI) to ask about the state of the home insurance market.
“In short: Californians are covered,” Deputy Insurance Commissioner Michael Soller told ABC10. “While both State Farm and Allstate made a business decision to put a temporary pause on new homeowners policies in our state, current customers will not lose their insurance, and both State Farm and Allstate continue to write auto insurance. While the Department of Insurance cannot do anything about rising costs of repairs, materials, and rebuilding, we are not powerless.”
He laid out actions the CDI is taking, including working with the Governor and Legislature to invest $2.7 billion into wildfire resilience programs over the past three years.
Insurance companies use risk modeling tools like Verisk's FireLine® and RedZone's RZRisk to determine whether a home is in a fire-prone area. Many California homeowners - especially ones living in those areas - are finding their home insurance policy non-renewed or their premium sharply increased. Some are finding the California FAIR Plan (Fair Access to Insurance Requirements) is their only remaining option.
The whole situation drove two El Dorado County homeowners - Laura and Charlie Callahan - from their house of 25 years to Tennessee.
ABC10 first spoke with them in 2019, as they grappled with the rising cost of insurance.
"We had our homeowners insurance for over 20 years and we got 'the letter,' as people refer to it, and we were canceled,” Laura told ABC10 in 2019. “I'm now paying four times what I was paying before. It's gone from less than $1,000 a year to almost $4,000 a year. And we're on a fixed income. He's retired. I'm retiring, and it wasn't something we expected."
Less than a year later - in 2020 - the Callahans moved to Savannah, Tenn.
“Homeowners insurance was the big one because it was an unknown,” said Laura. “We didn't know what the future held for that - if we even were able to get to keep getting insurance, much less how much we are going to have to pay for it."
Compared to their California home, the Callahans now own a house twice the size, 20 years newer, “and my homeowners insurance is $1,600 a year,” Laura said. “I mean, you can't beat that with a stick."
Back in 2019, one of their frustrations was that no matter how much defensible space they cleared, it didn't seem to matter to insurance companies.
"I always kept working on my property, taking down brush and things like that all the time,” Charlie told ABC10 from Tennessee. “But it doesn't matter."
Since then, California Insurance Commissioner Ricardo Lara – who held a series of town halls on this very topic back in 2019 - has attempted to address that.
"Commissioner Lara has mandated insurance companies to recognize and reward wildfire safety and mitigation efforts made by homeowners and businesses,” Soller told ABC10. “His new [Safer from Wildfire] regulation requires insurance companies to submit new rates that recognize the benefit of safety measures such as upgraded roofs and windows, defensible space, and memberships in community-wide programs such as Firewise USA and the Fire Risk Reduction Community designation developed by the state’s Board of Forestry and Fire Protection. It further requires insurance companies to provide discounts to consumers that meet various elements of the Safer from Wildfires framework and to provide consumers with their property’s ‘wildfire risk score,’ including a right for consumers to appeal that score."
ABC10 asked the Callahans if that would have made a difference to them.
Laura said she thinks the new regulations will prompt insurance companies to leave the state.
“Try to force a business to do business, they're going to leave,” she said. “I just don't see how it's feasible.”
Read more about some of the measures the CDI is taking HERE.
ABC10 is working on a larger story about the home insurance market in California. If you would like to share your story or some information, please email tothepoint@abc10.com.
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