State Farm will no longer insure homes, businesses in California due to fire risks and costs

State Farm announced Friday that it will not take new applications for personal line or business property and casualty insurance in the state of California.

The risk of catastrophes such as wildfires, floods, and earthquakes, as well as spikes in construction costs, led State Farm to stop taking California insurance applications. The new policy takes effect Saturday.

“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 wrote in a statement.

The reinsurance market refers to the practice of multiple insurance companies sharing risks for clients that are too big to handle for one company alone. Companies purchase policies from other insurance companies, thereby spreading the risk out at a manageable cost for those involved.

State Farm car insurance is not affected by the change, and existing State Farm customers will continue to be served by the company.

As of 2021, State Farm was the largest property and casualty insurer in California, serving 8.339% percent of the total market, bringing in over $7 billion in premiums. The company’s losses totaled to over $4 billion, a loss ratio of 59.47%.

State Farm also said that it would work with the California Department of Insurance and policymakers to build up the market capacity for insurance in the state. The move, State Farm indicated, was made to preserve the company’s financial health.