Tens of thousands of Californians will have to switch to a new insurer as another company ends its coverage in the state, although most policyholders will receive offers from the same parent company.
An insurer that is part of Farmers Insurance Group – the second-largest provider in California’s property and casualty market – has surrendered its Certificate of Authority, which allows the company to operate in the state, according to an October filing with the state Department of Insurance.
Farmers Direct Property and Casualty Insurance Company will withdraw from all insurance programs offered in California, including home, auto and renters insurance. Most Farmers Direct policyholders will receive “soft-landing offers” similar to renewals with another Farmers company, said Michael Soller, deputy insurance commissioner. He estimates that only about 2,800 Farmers Direct policyholders may not receive an offer.
Farmers Direct stopped writing new policies in the state on 15 September, when it surrendered its certificate of authority, according to the state filing. The company will continue to service existing policies, but has begun sending out non-renewal notices to those with active policies. The non-renewals will take effect on a rolling basis beginning in mid-December.
The majority of Farmer’s Direct California policies are auto and homeowners. As of June, the company had 57,938 auto policies and 19,778 homeowners policies in force.
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 the continued rise in rebuilding costs,” the company said. It made a similar move in Florida, another coastal state hit hard by severe weather. Those switching from Farmer’s Direct to another Farmers subsidiary will not be subject to the cap, Soller said.
Farmers Insurance Group did not immediately respond to a request for comment.
Allstate and State Farm have also stopped writing new policies in California, citing wildfire losses as a key factor. And four smaller insurance brands owned by Kemper Corp. recently filed plans to leave the state, though they did not attribute the decision to wildfires or other severe weather; they will not renew policies starting in 2024.
The California Department of Insurance is trying to reverse the shrinking of insurance options, especially for those in high-risk wildfire areas, with a series of new rules to be implemented by the end of 2024. One major change will require insurers to write an average of at least 85% of their California market share in communities at high risk of wildfire.
Consumer advocates have criticised the Department of Insurance’s plan, saying it is too lenient on insurers.
