After State Farm’s and Allstate’s Exits, Farmers Insurance Sets Limits in California

In an email to The Standard, a Farmers spokesperson confirmed that the company had “paused” several insurance programs and was limiting the amount of new business it takes on.

Source: The San Francisco Standard | Published on July 10, 2023

Farmers to write multi-peril policies in CA again

In May, Zachary Erbe received some alarming news: Farmers Insurance would not renew his building’s insurance policy, which expired in August.

The reason? The three-unit residential building located near Alamo Square was constructed before 1925.

As chairman of the homeowner’s association, Erbe jumped into action and sought new coverage. He thought he had another policy lined up with State Farm.

Then, he got some more bad news: State Farm announced on May 26 that it would not be taking on new business in California. Shortly thereafter, the San Francisco Chronicle reported that another major player, Allstate, had done the same.

Erbe’s plight is increasingly the norm for Californians—and the situation is getting worse.

Earlier this year, Farmers Insurance, the second largest provider, limited new business on its main residential policies, according to a rate filing with the state regulator.

Moreover, multiple former customers like Erbe—usually owners of condos or multiunit buildings—told The Standard the company declined to renew their policies because of the age of their properties.

The changes by Farmers, which have not been previously reported, pour cold water on hopes that other major insurers will easily pick up the slack left by State Farm’s and Allstate’s decisions to forego new business in California.

In an email to The Standard, a Farmers spokesperson confirmed that the company had “paused” several insurance programs and was limiting the amount of new business it takes on.

“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,” Farmers said. “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.”

For Erbe, the situation is stressful. He has yet to find new insurance for his building.

“This underwriting model doesn’t work,” he said. And the insurance companies “are not being particularly transparent with why it’s not being covered.”

Burying the Lead

Farmers outlined its decision to limit new business in California in two underwriting updates in a March filing with the Department of Insurance, which oversees the industry in California.

Those updates likely did not receive significant public attention because they were buried near the end of over 3,800 pages included in the filing.

In the first update, the company said that applications submitted for its Next Generation Homeowners, Smart Plan Renters and Smart Plan Condominium programs would be “ineligible for new business” starting April 15.

In the second, Farmers said it would limit applications to its Smart Plan Home program to 7,000 a month starting on July 3.

Janet Ruiz, communications director of the Insurance Information Institute industry group, told The Standard she was aware of Farmers limiting the number of policies it can write per month due to market conditions.

“The way the industry works is spreading risk,” she said. “No insurance company wants to write all the policies in a specific area. They have to manage the amount of risk they have in any given area.”

When fewer companies are writing policies, that puts a strain on the California homeowners insurance market, she added.

In an email to The Standard, Michael Soller, a deputy commissioner at the Department of Insurance, stressed that Farmers is continuing to sell home insurance to Californians.

“We do not expect their footprint in the state to change significantly one way or another,” he said.

Too Old

But something does appear to be changing.

In the months following the March filing, numerous Farmers policyholders received notices of non-renewal.

Mohammed Masood received an April letter informing him Farmers would not renew a 1920 residence he owns in Stockton.

The news caught the retired X-ray technician, who has owned the building since 1989, off guard. In five years with Farmers, he had only made one small claim for $2,000 of damage caused by a windstorm.

His insurance agent told him that Farmers had a new blanket policy: After July, the company would not be insuring older buildings.

“What about San Francisco?” Masood said he asked the agent. “They have so many over-100-year-old buildings! Who’s going to insure them?”

Since then, Masood has been unable to find new insurance. He ultimately applied to the California FAIR Plan, an insurance industry-funded insurer of last resort for people who cannot find a policy on the market.

Asked whether it had stopped insuring old buildings, Farmers did not answer directly, only saying that it considers a dwelling’s age when deciding whether to insure it.

Lynne Painter, who leads the homeowners association for a six-unit building in San Francisco’s Marina District, received a similar “non-renewal” from Farmers. Her building was built in 1906.

She ultimately found new insurance—but the annual premium jumped by nearly $8,000. “I almost had a heart attack on the spot,” she said.

But not everyone has been so lucky. As he struggles to find insurance for his Alamo Square building, Erbe wonders how many other people will be hit by Farmers backing off of older homes.

“A lot of people that are in a similar situation haven’t gone through the non-renewal yet,” he said. “It’s just coming down the pike for a lot of these other folks.”