State Farm, one of the biggest insurers in California, canceled hundreds of homeowners' policies last summer in Pacific Palisades—the same area which is now being ravaged by a devastating wildfire

State Farm, one of California's largest insurers, canceled hundreds of homeowners’ policies last summer in Pacific Palisades—an area now being ravaged by a severe wildfire.

The company justified its decision as a necessary step to prevent "financial failure" amid the increasing frequency and intensity of wildfires in high-risk areas of the state. However, as multiple fires continue to devastate Southern California, many residents will likely depend on their insurers to recover once the flames are extinguished.

State Farm’s Actions

State Farm canceled around 1,600 policies in Pacific Palisades alone, part of a larger decision to cut 72,000 policies across California for houses and apartments in 2024, according to ABC 7. The company stopped issuing new homeowners’ policies in the state as early as 2023, citing wildfire risks and regulatory challenges. In ZIP codes such as 95033 (Santa Cruz mountains) and 95409 (Santa Rosa), over 65% and nearly 48% of policies, respectively, were canceled last summer.

In a March 2024 letter to Insurance Commissioner Ricardo Lara, State Farm President and CEO Denise Hardin said the cancellations were a reluctant but necessary measure to stabilize the company’s financial position. Hardin noted that rate increases alone were insufficient to address the growing risk exposure. "We must now take action to reduce our overall exposure... as most insurers in California have already done," she wrote.

California's Insurance Crisis

State Farm’s move is part of a broader trend in California, where private insurers have increasingly withdrawn from high-risk areas. This has left many homeowners struggling to find coverage, driving a surge in policies issued by California’s FAIR Plan, the state’s insurer of last resort. FAIR Plan policies more than doubled between 2020 and 2024, reaching 452,000, according to CapRadio.

Most insurers cite rising wildfire risks and state regulations limiting premium hikes as reasons for cutting coverage. This has led to a growing property insurance crisis, making it harder for residents to secure affordable insurance when they need it most.

Southern California Wildfires

As of early Wednesday, three major fires were burning across Southern California:

• Palisades Fire: Started Tuesday evening and has scorched 2,900 acres in Pacific Palisades.
• Eaton Fire: Burning near Pasadena in Eaton Canyon, with 1,000 acres affected.
• Hurst Fire: Located near San Fernando, covering roughly 500 acres.

The fires are being fueled by winds gusting up to 100 mph, as reported by The New York Times. The LA Fire Department has issued pleas for off-duty firefighters to assist as resources are stretched thin.

Public Reaction and Criticism

State Farm’s cancellations have drawn criticism as wildfires continue to devastate communities. Some residents and lawmakers have expressed frustration over insurers’ withdrawal from the state, calling for reform to address the crisis.

In her letter to Commissioner Lara, Hardin acknowledged the challenges posed by the company's actions but reiterated State Farm's willingness to collaborate on broader reforms to stabilize the insurance market in California.