State Farm has stopped accepting homeowner and business insurance applications in California, the company announced on Friday, saying the cost of paying out claims has become too high.
An increase in the risk of events such as wildfires that have burned large portions of the state in the past few years led to the decision, the company said in a statement.
“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 the statement. “It’s 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.”
The company said it had to pay out millions for such events as the 2021 Dixie Fire in Northern California, which was the largest single wildfire in state history. The Dixie Fire burned nearly 1 million acres in the state and destroyed more than 700 homes.
Company officials also cited the increase in the cost of reinsurance – or insurance for the claims insurance companies must pay out – as a reason for the change.
“Reinsurance is also getting more expensive due to the amount of losses, not just in California, but also in other states” that experience tornadoes, hurricanes and other disasters, Janet Ruiz, communications director with the Insurance Information Institute, told The Washington Post.
The Insurance Information Institute is a nonprofit organization that provides information on the insurance industry.
The company said that current customers will not be affected by the decision that went into effect on Saturday. State Farm will continue to write auto insurance policies in the state.
According to the Insurance Information Institute, State Farm is the top insurance provider in California.