State Farm is facing a rising tide of new scrutiny amid wildfires ripping through whole communities in Los Angeles. The insurer ended coverage for thousands of homes in the Pacific Palisades months before the disaster ruthlessly claimed swaths of homes, schools, houses of worship, and at least 10 lives.
Now, consumers and watchdogs have a gimlet eye trained on the executive team’s next move, putting CEO Jon Farney in an unenviable hot seat. Farney took the helm in June after former CEO Michael Tipsord retired. Farney was not yet CEO when the insurer decided to no longer accept homeowners’ applications in California or end coverage for thousands of homes, but he is a 30-year veteran of the company and has served in multiple executive roles.
Terry McNeil, an insurance expert and president and CEO of T.D. McNeil Insurance Services, said State Farm will likely try to do right by its customers but it is already strained in the state. The increase in claims being filed—along with the fact that the company relies less than other carriers on reinsurance, which is basically insurance for insurance—puts the company at risk.
“I think the effect on State Farm is going to be catastrophic. I think it's going to, if anything, increase the speed at which they pull out of California,” McNeil said.
However, the insurer, which underwrites a fifth of California’s homeowners market, according to the San Francisco Chronicle, would face significant regulatory hurdles and potential legal challenges if it exits the California market. Still, State Farm has been scaling back its business in the state over the past few years. In 2023, State Farm raised rates by an average of 20% for existing customers and said it would no longer accept new homeowners’ insurance applications in California. And in March, the insurance company said it would end coverage for around 72,000 homes and apartments in the state, 1,600 of which were in the Pacific Palisades where one of the largest fires is still uncontained.
In both decisions, State Farm cited its exposure to catastrophe 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 last couple of years have been developing for years.”
In California, insurance companies have to get state approval for rate hikes through what can be a lengthy regulatory process. Last year, the company sought increases of 30% for its homeowners line, on top of the 20% it was approved for in December 2023.
For now, the company and its executives are facing the brunt of people’s criticism in the wake of the wildfires. Even celebrities such as actor and comedian Rob Schneider took to social media website X to call out the company specifically.
