Over the past few years, the “California exodus” has seen millions of people move out of the Golden State, leaving for better pastures as taxes skyrocket, business costs rise, and buying a home has become unobtainable for most regular people. According to the latest population estimates from the U.S. Census Bureau, California’s total population declined by more than 500,000 between April 2020 and July 2022.
Now it looks like one of the biggest insurers is doing the same after State Farm announced that the only way to not lose money is to leave California and no longer insure homes there.
The insurance giant “will no longer accept new applications for property insurance and other policies in California, citing ‘historic’ increases in construction costs and inflation,” the company said Friday. Beginning Saturday, the Illinois-based insurance group will cease to accept applications for business and personal lines property and casualty insurance. The move doesn’t impact personal vehicle insurance, according to Fox News.
‘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 company said in a release. ‘The Department of Insurance is focused on the safety of our homes and communities.’
A spokesperson for the California Department of Insurance told Fox Business it is committed to protecting customers.
“The factors driving State Farm’s decision are beyond our control, including climate change, reinsurance costs affecting the entire insurance industry, and global inflation,” the spokesperson said.
California has some of the most expensive housing costs in the nation amid a shortage that many say has exacerbated the homeless crisis up and down the state. The state plans to spend about $30 million to build 1,200 small homes.”
In its statement to The Wall Street Journal, State Farm said it takes “seriously our responsibility to manage risk” and that their actions were “necessary to take these actions now to improve the company’s financial strength. We will continue to evaluate our approach based on changing market conditions.”
According to the nations leading business newspaper, “many home insurers operating in California don’t think they are being granted appropriate-enough rates ‘for the risks we are facing,’ said Janet Ruiz, a representative for trade group Insurance Information Institute in California. Insurers generally have continued “to sell at least some new policies, but they are shrinking in areas where there is wildfire,’ she said.
For 2022, State Farm’s auto-insurance companies reported record underwriting losses, totaling $13.4 billion, due primarily to rapidly increasing claims severity. Its homeowners’ business reported an underwriting gain. State Farm is a mutual company, meaning it is owned by its policyholders, and it has deep pockets. It ended 2022 with net worth of $131.2 billion.
Another big insurer, American International Group, last year notified thousands of high-net-worth clients in California that their home policies wouldn’t renew. The notices were part of a plan by AIG to cease selling home policies in California through a unit regulated by the state’s insurance department.”
Most studies of the issue have shown that Californians are moving to Texas and Florida.