Farmers Insurance, one of the nation’s largest property and casualty insurers, is laying off 2,400 workers, or 11% of its total workforce.
In an announcement on Monday, the Los Angeles-based company cited the need to reduce operating costs and focus on “long-term sustainable profitability” to explain the job cuts.
It’s been a chaotic year for the California insurance market, and this isn’t the first dramatic move Farmers, the state’s second-largest home and auto insurer, has made in recent months.
In July, the company announced that it did not plan to accelerate its growth in the state and would continue to write new policies at the same pace as before. In a normal year, this would not be news – but in 2023, it amounted to a shot across the bow for homeowners, builders and state regulators.
State Farm, the largest home insurer in the state, had announced in May that it would stop writing new home insurance policies in the state, saying that rising construction costs due to inflation, ballooning reinsurance fees and growing wildfire risks were making it difficult to write more policies. Allstate, the state’s sixth-largest insurer, paused last year. Farmers’ announcement was an admission that it wasn’t going to fill the void left by its competitors’ withdrawal.
“Given the current conditions in the insurance industry and the impact they are having on our business, we must take decisive action today to better position Farmers for future success,” said Raul Vargas, president and chief executive of Farmers Group, in Monday’s layoff announcement. “As our industry continues to face macroeconomic challenges, we must carefully manage risk and prudently align our costs with our strategic plans for sustainable profitability.”
The “existing conditions” and “macroeconomic challenges” Vargas refers to are the same rising rebuilding costs and the risk of severe weather events, including fires, floods and tropical storms, that State Farm pointed to earlier this year. These factors have also driven up the cost of reinsurance policies, which insurance companies take out to cover their own losses in the event of major catastrophes.
Farmers also said earlier this year that it would stop selling new homeowners policies in Florida and plans to withdraw further from the state, according to Insurance Journal.
Despite these negative trends, Farmers has fared better than most of its competitors in California. State Farm’s home and auto lines lost more than $2 billion in the first three months of 2023, with $1.8 billion in losses coming from its auto insurance division alone. Farmers, by comparison, lost about $150 million in the same period.
While the major players in California’s insurance industry have withdrawn from the market, insurance industry groups are calling for reforms to the state’s regulatory system. Since 1988, when California voters approved Proposition 103, insurance companies have only been allowed to raise rates with the approval of the California Department of Insurance, currently headed by Insurance Commissioner Ricardo Lara, after meeting a series of strict transparency and financial requirements.
Lawmakers in Sacramento have taken note of the market situation – and the industry’s arguments.
The state Senate Republican Caucus released a public letter to the insurance commissioner last week declaring that “the insurance industry is broken” and echoing industry talking points that companies should be able to use new fire models to set higher rates for homeowners in high-risk fire zones, pass on reinsurance costs to policyholders and generally speed up the rate increase approval process. Democratic lawmakers who control the state government are discussing similar reforms, according to Politico.
Consumer Watchdog, the non-profit consumer advocacy group that led the Proposition 103 ballot campaign, called the potential changes a “multi-billion dollar bailout” of the insurance industry in a statement on Monday. Harvey Rosenfield, the group’s founder, added that “insurance companies are trying to use a crisis to get the deregulation they have sought for 35 years.
