State Farm is facing a rising tide of new oversight amid wildfires ravaging entire Los Angeles communities. The insurer canceled coverage for thousands of homes in Pacific Palisades months before the disaster mercilessly claimed a number of homes, schools, places of worship and at least 10 lives.
Now, consumers and watchdogs are closely watching the executive team’s next move, putting CEO Jon Farney in the unenviable hot seat. Farney took the helm in June after former chief executive Michael Tipsord retired. Farney was not CEO yet when the insurer decided to no longer accept claims from California homeowners or drop coverage for thousands of homes, but he is a 30-year veteran of the company and has served in multiple executive capacities.
Terry McNeil, insurance expert and president and CEO of TD McNeil Insurance Services, said State Farm will likely try to do right by its customers, but it’s already tense in the state. The increase in claims—coupled with the fact that the company relies less than other carriers on reinsurance, which is basically insurance for insurance—exposes the company to risk.
“I think the effect on State Farm will be catastrophic. I think, if anything, it will increase the speed at which they withdraw from California,” McNeil said.
However, the insurer, which captures a fifth of the California home market, according to San Francisco Chroniclewould face significant regulatory obstacles and potential legal challenges if it leaves the California market. Still, State Farm has scaled back its operations in the state in recent years. State Farm raised rates by one in 2023 average of 20% for existing customers and said it will no longer accept applications for new homeowners insurance in California. In March, the insurance company said it would end coverage for about 72,000 homes and apartments in the state, 1,600 of which were in Pacific Palisades where one of the biggest fires is still raging.
In both decisions, State Farm cited its catastrophe exposure as its rationale, and a spokesperson for the insurer added in a statement: “The market conditions that led State Farm General to make difficult but necessary business decisions over the past several years have been years in the making. “
In California, insurance companies must get state approval to raise rates through what can be a lengthy regulatory process. Last year the company 30% increases requested for its homeowner line, on top of the 20% that was approved in December 2023.
