Quick Take:
Nearly 4,300 Santa Cruz County residents learned recently that State Farm isn't renewing their home insurance policies as part of a broad pullback by the insurance giant across the state. Several told Lookout they're concerned about rising costs and risks.
When Angie Richman, 35, learned State Farm was not planning to renew her home insurance policy come November, the Ben Lomond resident was “surprised and upset.” Richman lives a half-mile from the nearest fire station.
She’s one of nearly 4,300 Santa Cruz County residents who learned recently that State Farm was not renewing their home insurance policies as part of a broad pullback by the insurance giant across the state. In total, State Farm has said it would not renew policies for about 30,000 homeowners in California, along with another 42,000 commercial policies on apartment buildings.
Locally, residents of the Santa Cruz Mountains and San Lorenzo Valley were hardest hit by the change. According to data published by the California Department of Insurance, State Farm is not renewing the policies of more than 40% of homeowners in the Felton area and 65% of those living in the communities surrounding Highway 35 in the mountains, an area that stretches into Santa Clara County. The insurance company is also opting to not renew 38% of the 953 homeowner policies it now has in the Soquel area.
Richman is one of 311 Ben Lomond residents to be non-renewed – or 31.6% of State Farm’s total 984 policyholders there.
State Farm is one of the last insurers to start to pull out of areas deemed to be a high risk of environmental catastrophes such as wildfires or floods, leaving almost no options for Richman. She’s preparing to potentially sign up for the much more expensive FAIR Plan, the state-mandated insurer of last resort.
“It just feels like the cost of everything keeps increasing – water and power, and now this,” she said. “It’s pretty overwhelming.”
The news from State Farm comes after it announced last summer that it would no longer be writing new home insurance policies in the state, partially due to the rising fire risk.
“This decision was not made lightly and only after careful analysis of State Farm General’s financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations,” the company said in a March 20 statement.
The state’s Insurance Commissioner, Ricardo Lara, is rushing to implement policies to reform the insurance industry. They include streamlining the review process for the state to approve or deny insurance companies’ proposed rate increases, and regulations that would allow insurers to use catastrophe modeling – computer programs take into account various factors, such as climate change, to set rates based on the likelihood of future catastrophic events.
But until the state is able to come to a deal to lure insurance companies back, homeowners in Santa Cruz County and the rest of California aren’t sure where they’ll go next for insurance. Many expect that their only option will be the Fair Access to Insurance Requirement, or FAIR Plan, which is run by an association made up of all private insurers who write property and casualty business policies in California. Insurers take on losses and receive profits from the plan.
If Richman and her husband can’t find another option other than the FAIR Plan, they expect their insurance costs – currently at about $3,630 a year for their home and cars – to more than double to around $6,900.
“What’s the point? There’s no point in saving money because it’s all just going out the window,” she said. “Every raise is gone before you see the money.”
Still, the FAIR Plan isn’t without its own financial challenges. As insurance companies have scaled back their business across California, the FAIR plan has seen its number of homeowner policies more than double in the past five years, from around 154,000 in 2019 to nearly 340,000 by December 2023.
Earlier this month, Victoria Roach, president of the FAIR Plan Association, told an assembly committee hearing that the plan has seen its liability exposure climb dramatically over the past several years because it’s been forced to take on high-risk policies. She warned the insurer of last resort and may not be able to financially survive a major disaster.
The State Farm announcement has also overwhelmed local insurance agents. Lookout reached out to nine Santa Cruz County agents. Three responded and declined to comment. They provided contact information for the company spokesperson.
Someone who answered the phone at a local State Farm agent’s office said, “It’s been nonstop. Crazy.” She said one agent had to make 600 phone calls to notify customers that their policies were being non-renewed.
One State Farm agent declined to comment saying, “It’s so toxic out there.” He said he didn’t want his name publicized with the stress of the announcement on so many homeowners.
Greg Rauch, 73, grew up in Ben Lomond and bought a home there in 1987. He pays nearly $4,000 in home insurance through State Farm.
Almost two weeks ago, when he saw his agent’s number calling he knew something wasn’t right.
“When he called, I saw the caller ID, and I thought well, Justin doesn't normally call with good news,” said Rauch.
His agent told him their policy was non-renewed and would expire August 25. Rauch said he’s full of frustration and doesn’t know what all of his options are yet, or if he’ll only have the FAIR Plan.
“I don't know that much about the California FAIR Plan, but it doesn't sound very fair,” he said.
Rauch added that his agent told him that he had about 200 similar phone calls to make.
“He’s a really good guy, and he’s feeling this pain,” he said. “There’s some economic pain he has to go through, but to let 200 policyholders know they’re not renewing is really painful for a conscientious insurance agent, on behalf of his customers, and, facing a serious decline in business revenue.”
Rauch, a retired electrical engineer, thinks a major reimagination of the insurance industry is needed. He added that he doesn’t have much hope in elected officials’ ability to make improvements and isn’t sure about the potential for independent groups of people or organizations to pull their resources to create their own insurance program.
“I think the process is broken,” he said.
Santa Cruz County Supervisor Bruce McPherson for the fifth district, which includes the San Lorenzo Valley, told Lookout he and fellow supervisors have been advocating for changes at the state level, but there isn’t much they can do besides that.
“We lodge our concerns and complaints, but it's literally out of our hands,” he said.
