State Farm stops insuring California homes, citing rising risk of wildfires

State Farm has stopped accepting new applications for homeowner insurance for California residents, citing the increased risk of catastrophic wildfires and the rising construction costs.

The insurance company, one of the leading providers in the area, put a moratorium on applications for business and personal lines property and casualty insurance in California on Saturday, May 27. However, the decision does not affect auto insurance policies or those who previously insured their homes with State Farm. Still, experts say the decision "signals the growing threats to insurance availability and affordability in the face of climate crisis-fueled disasters," per The Washington Post.

"State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market," the company explained in a statement. "It's necessary to take these actions now to improve the company's financial strength. We will continue to evaluate our approach based on changing market conditions."

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The company also acknowledged the state government's efforts to mitigate wildfire loss and vowed to o "work constructively" with the California Department of Insurance and policymakers "to help build market capacity in California. However, it's necessary to take these actions now to improve the company's financial strength."

Problems with insurers are emerging all over California, Ryan Tompkins, a forester and natural resources adviser with the University of California, told the Post. "Many of our communities in rural, forested areas of California are experiencing not only increasing wildfire and increasing wildfire severity, but also increasing insurance problems," Tompkins said. "They're getting dropped. They're getting non-renewed. We're seeing a sort of insidious, quiet impact economically."

While "insurance companies prioritize their short-term financial goals, the long-term goal of the Department of Insurance is protecting consumers," California Department of Insurance spokesperson Michael Soller said, CNN reported. The agency had no control over the factors behind State Farm's decision, Soller added.