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State Farm's policy reductions are part of a larger trend in the California insurance market • California Apartment Association

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State Farm's decision not to renew about 72,000 real estate and commercial apartment policies in California is indicative of a larger trend impacting the state's insurance market. The move, endorsed by major insurers such as Farmers Insurance Group and Allstate, marks a growing industry trend to reduce exposure in California, particularly in areas prone to wildfires.

These changes, part of an evolving landscape in which the state has experienced some of the most devastating wildfires in the last decade, raise concerns about the declining availability of insurance options and underscore the need for a strategic response to maintain market stability.

The California Apartment Association, along with other industry groups, raised these concerns in a letter to state lawmakers last year. They highlighted the urgent need for legislative support to address these growing challenges and emphasized the critical importance of a competitive, functioning property insurance market. “Without immediate action, California could well experience a collapse of the entire insurance industry if a catastrophic wildfire results in large losses to the FAIR Plan,” the letter said. “Such a collapse could undermine the entire housing industry and California’s economy.”

A new bill was proposed this year to strengthen the California FAIR Plan Association, a safety net for property owners who have difficulty finding insurance. AB 2996, introduced by Rep. David Alvarez, D-Chula Vista, and supported by CAA, aims to improve the financial resilience of the FAIR Plan by allowing it to authorize bond issuance with the California Infrastructure and Economic Development Bank (IBank) to apply. This move could be instrumental in preventing potential insolvency of the FAIR Plan in the event of future catastrophic wildfires.

The California Department of Insurance is considering additional changes, including implementing catastrophic modeling for rate adjustments. Commissioner Ricardo Lara's Sustainable Insurance Strategy initiatives aim to make the California market more attractive to insurance companies while ensuring the availability of policies in most states. However, the move to allow disaster modeling that combines historical data with projected risks and losses has drawn criticism. Some are raising concerns about possible inconsistencies and lack of transparency in these models, fearing that this could lead to unwarranted interest rate increases.

The California Apartment Association continues to advocate for a balanced and sustainable insurance market and emphasizes the importance of property owners staying abreast of market trends and regulatory changes. This vigilance is essential to ensuring the continued sustainability and profitability of rental properties in California's evolving insurance environment.