Home insurance exodus: Another key insurer leaves California

Tens of thousands of Californians will need to switch to a new insurance provider as another company ends coverage in the state, though most policyholders will get offers under the same parent company.

An insurer that is part of Farmers Insurance Group — the second-largest provider in California’s property and casualty market — surrendered its Certificate of Authority, which allows the company to operate in the state, according to an October filing with the state’s Department of Insurance.

Farmers Direct Property and Casualty Insurance Company will withdraw from all insurance programs offered in California, including home, auto and renters policies. Most of the policyholders with Farmers Direct will get “soft-landing offers,” which will resemble renewals in another Farmers company, according to Michael Soller, deputy insurance commissioner. He estimates there will be only about 2,800 Farmers Direct policyholders who may not get an offer.

Farmers Direct stopped writing new policies in the state on Sept. 15, when it gave up its Certificate of Authority, according to the state filing. The company will continue to service existing policies, but began sending out nonrenewal notices to those with active policies. The nonrenewals will take effect on a rolling basis, beginning mid-December.

Most of Farmers Direct California policies are in auto and home. As of June, the company had 57,938 auto policies and 19,778 home policies.

The parent company, Farmers Insurance, began limiting coverage in the state earlier this year.

In July, Farmers Insurance capped the number of policies it would write each month due to “record-breaking inflation, severe weather events, and reconstruction costs continuing to climb,” according to the company. It made a similar move in Florida, another coastal state heavily impacted by severe weather. Those who will be switching from Farmers Direct to a different Farmers subsidiary are not subject to the cap, Soller said.

Farmers Insurance Group did not immediately respond to a request for comment.

Allstate and State Farm have also halted new California policies, citing wildfire damage as a key factor. And four small insurance brands that are part of Kemper Corp. recently filed plans to exit the state, though they did not attribute the decision to wildfires or other severe weather; they will non-renew insurance policies starting in 2024.

The California Department of Insurance is trying to reverse the shrinkage of insurance options, especially for those in high wildfire risk areas, with a set of new rules to be implemented by the end of 2024. One major change will be that insurers must write at least an average of 85% of their California market share in high-wildfire-risk communities.

Consumer advocates have criticized the Department of Insurance’s plan, saying it is too lenient with insurers.