State Farm Cut Policies. Then the Fires Hit.

Summary

Podcast Summary: The Journal - "State Farm Cuts Policies. Then the Fires Hit."

Introduction

In the February 19, 2025 episode of The Journal, hosted by Jessica Mendoza with contributions from Jean Eaglesham, the Wall Street Journal and Gimlet delve into the tumultuous relationship between State Farm Insurance and California homeowners, set against the backdrop of devastating wildfires. The episode explores State Farm's abrupt policy cancellations, the resultant strain on California's insurance market, and the catastrophic impact of ensuing wildfires on affected communities.

State Farm's Dominance and Sudden Retreat

For nearly four decades, State Farm was the cornerstone insurer for many California homeowners, including Sandra Kaler, a 74-year-old resident of the Pacific Palisades in Los Angeles. Sandra describes her long-term relationship with State Farm:

Sandra Kaler [00:10]: "I raised four children there. It was homey. It had a view of the ocean. It had, you know, a deck on top. It was home, you know, it was home."

However, in August of the previous year, State Farm sent a letter notifying Sandra and thousands of other homeowners that their policies would not be renewed as of November 25th, just six weeks before a series of devastating wildfires struck Los Angeles.

Sandra Kaler [01:25]: "And then in August I think it was, we got a letter from them saying that, you know, you were being dropped and we were, you know, going to be dropped."

Impact on California's Insurance Market

State Farm's decision to retract policies left many homeowners with limited insurance options, forcing them to turn to the California Fair Plan—a state-backed insurer that provides basic fire insurance but often at exorbitant rates with limited coverage.

Jessica Mendoza [04:44]: "For years, Sandra was happy on State Farm. She knew her agent by name. Plus, State Farm kept Sandra's policy inexpensive for decades."

As State Farm was the largest insurer in California, covering over a million home policies, its exit significantly destabilized the local insurance landscape. Other major insurers like Allstate and Travelers had already been retreating due to rising inflation and increased catastrophe risks, making State Farm's withdrawal even more impactful.

Jean Eaglesham [05:38]: "So other companies like Allstate Travellers were pulling back from there. They were looking at very rapidly rising inflation. They were looking at much higher catastrophe risks. And the insurers just looked at it all around and said, this isn't working for us."

State Farm’s Internal Struggles and Regulatory Constraints

Despite its aggressive expansion, State Farm was grappling with escalating risks and internal financial strains. Reports from State Farm indicated that they were not adequately pricing the increasing risks associated with California's wildfire-prone regions. Although State Farm internally recognized the need for significant rate hikes, regulatory limitations in California restricted rate increases to a maximum of 6.9% without necessitating a public hearing.

Jean Eaglesham [06:18]: "They kept asking for 6.9%."

This constrained State Farm's ability to adjust premiums to match the growing risks, ultimately leading to unsustainable financial conditions for their California subsidiary.

Leadership Change and Policy Reversal

In 2023, a pivotal leadership change occurred when Denise Harden took over as the new chief executive of State Farm's California subsidiary. Recognizing the unsustainable risk exposure, Harden sought a substantial rate increase of 28%, a figure that starkly contrasted with the previously permissible 6.9%.

Jessica Mendoza [08:55]: "It's a shockingly high level in the context of the California market. For the biggest insurer in that market to say we need 28% just showed how serious things were."

Despite this bold move, California regulators only authorized a 20% rate increase, which fell short of State Farm's needs. Consequently, in March 2024, State Farm announced it would not renew policies for 30,000 homeowners, further exacerbating the insurance crisis.

Jean Eaglesham [10:21]: "Their argument was, we just have too much risk on our books. We're still making a loss on every policy we sell."

Case Study: Sandra Kaler’s Struggle

Sandra Kaler's experience epitomizes the broader challenges faced by California homeowners. Following State Farm's policy cancellation, Sandra struggled to find affordable insurance, facing a dramatic increase from her previous $3,000 policy to $14,000 with another company.

Sandra Kaler [11:33]: "Our insurance for State Farm had been something like $3,000. You know, it was never very much. And he called around and we... found a company that it was going to be $14,000. And we went, that's crazy."

State Farm then directed her to the California Fair Plan, which, while providing essential coverage, offered limited protection and compounded financial burdens on homeowners.

The Wildfires and Aftermath

Tragically, just months after State Farm ceased renewing policies, catastrophic wildfires ravaged Los Angeles, destroying thousands of homes, including Sandra's. The Fair Plan, already strained by increased demand, struggled to cover the unprecedented $30 billion in damages—the most costly wildfire season in U.S. history.

Sandra Kaler [14:03]: "It's devastating."

Sandra's attempts to claim insurance from State Farm were met with denial, leaving her without the means to rebuild her $3.5 million home.

Sandra Kaler [14:24]: "And in the email follow up, he told me he'd pray for me."

Financial Strain on the California Fair Plan

The Fair Plan faced immense financial pressure, with losses from the fires exceeding $4 billion. Regulators intervened, approving a $1 billion bailout funded by major insurers like State Farm. However, a significant portion of these costs is being passed on to policyholders, leading to anticipated hikes in home insurance premiums statewide.

Jean Eaglesham [15:43]: "People will then see that amount added to their next home insurance bill."

This shift threatens to make home insurance even more inaccessible and expensive, not only for those in high-risk areas but across the entire state.

State Farm’s Ongoing Challenges

Despite State Farm’s hefty payouts exceeding a billion dollars to affected customers, the insurer remains financially strained. Their request for an emergency rate increase of 22% was rebuffed by California regulators, who demanded more substantial justification.

Jessica Mendoza [17:08]: "State Farm has been asked to make its case at a meeting next week."

With billions in pending claims due to the fires and continuing high-risk exposures, State Farm's position in California remains precarious.

Sandra Kaler’s Future and Community Devastation

Sandra and her husband, facing the loss of their lifelong home and community infrastructure, have accelerated their plans to retire in Hawaii. The destruction in the Pacific Palisades extends beyond homes, obliterating schools and local businesses, fundamentally altering the community fabric.

Sandra Kaler [17:55]: "I can't even believe that. But it's a whole town and you know, on a whole lifestyle that won't exist anymore."

Conclusion

The episode of The Journal poignantly illustrates the cascading effects of State Farm's policy cancellations against the backdrop of California's increasing wildfire risks. Homeowners like Sandra Kaler are left grappling with insurmountable financial burdens and the loss of their homes, while the state’s insurance market teeters on the brink of collapse. As regulators and insurers navigate this crisis, the episode underscores the urgent need for sustainable solutions to protect homeowners and stabilize California's insurance landscape.

Notable Quotes with Timestamps

• Sandra Kaler [00:10]: "I raised four children there. It was homey. It had a view of the ocean. It had, you know, a deck on top. It was home, you know, it was home."
• Sandra Kaler [01:25]: "And then in August I think it was, we got a letter from them saying that, you know, you were being dropped and we were, you know, going to be dropped."
• Sandra Kaler [11:33]: "Our insurance for State Farm had been something like $3,000... found a company that it was going to be $14,000. And we went, that's crazy."
• Sandra Kaler [14:24]: "And in the email follow up, he told me he'd pray for me."
• Sandra Kaler [17:55]: "I can't even believe that. But it's a whole town and you know, on a whole lifestyle that won't exist anymore."

Final Thoughts

This episode serves as a critical examination of the intersection between corporate insurance practices, regulatory frameworks, and the lived experiences of individuals amidst climate-induced disasters. It highlights the urgent need for systemic reforms to ensure that homeowners are adequately protected in an era of increasing environmental volatility.

Transcript

[Jessica Mendoza]

Sandra, can you tell me about your house in la? What words would you use to describe it?

[Sandra Kaler]

I raised four children there. It was homey. It had a view of the ocean. It had, you know, a deck on top. It was home, you know, it was home.

[Jessica Mendoza]

That's Sandra Kaler. She's 74 years old. And the house she's talking about was in the Pacific Palisades neighborhood in Los Angeles. You must have so many. But do you have a favorite memory of the place?

[Sandra Kaler]

You know, it's, it's just so hard to say. It's having, when the kids would have friends over that was pretty special. They didn't think I noticed, but it was pretty special that they would do that. And then also like we had, we had French windows that opened up and I had a fountain because I love the sound of water. And that's a very strong memory for me.

[Jessica Mendoza]

Sandra and her family lived in that house for 38 years. And the whole time the property was covered by California's biggest insurer, State Farm. That was until last year.

[Sandra Kaler]

And then in August I think it was, we got a letter from them saying that, you know, you were being dropped and we were going to be dropped. November 25th was the date.

[Jessica Mendoza]

November 25th. Just six weeks before fires devastated LA and burned down Sandra's home. Thousands of California homeowners have been dropped by State Farm in the past few months. Many of them, like Sandra, live in areas affected by the fires.

[Sandra Kaler]

People should know what State Farm did because we are, you know, many people in our area had State Farm and we trusted them.

[Jessica Mendoza]

State Farm's decision forced many homeowners to enroll in an already stretched insurance program backed by the state. And it put even more pressure on California's broken insurance market. Welcome to the Journal our show about money, business and power. I'm Jessica Mendoza. It's Wednesday, February 19th. Coming up on the show, State Farm, the LA fires and California's home insurance crisis.

[Jean Eaglesham]

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[Jessica Mendoza]

Did you have any challenges when it came to insuring your home?

[Sandra Kaler]

Oh, no. The Palisades is a very homey kind of town. Everybody uses the services of the town. And you know, there was a State Farm agent and someone told us, yeah, I think our realtor when we bought the house, said, contact him. And I did. And we set it up with him. And they had all, they had our cars and they had the house and he never had a problem. Wasn't super expensive. They were very responsive.

[Jessica Mendoza]

For years. Sandra was happy on State Farm. She knew her agent by name. Plus, State Farm kept Sandra's policy inexpensive for decades. Was the risk of fire something you thought about very much living in the Palisades?

[Sandra Kaler]

You know, we were on a hill, it's true, but there was never a fire there. And when they would say you'd need to evacuate, it would never be because of our area, really. It would be, you know, the next it would be Malibu or the other direction. So we never felt a personal risk.

[Jessica Mendoza]

State Farm is the biggest home and auto insurer in the country with more than 90 million customers. Its California subsidiary has the largest market share of any insurer in the state, covering a million home policies. And part of why State Farm is so dominant is that it has expanded in the state while other companies have retreated.

[Jean Eaglesham]

So other companies like Allstate Travellers were pulling back from there. They were looking at very rapidly rising inflation. They were looking at much higher catastrophe risks. And the insurers just looked at it all around and said, this isn't working for us.

[Jessica Mendoza]

That's our colleague, Jean Eaglesham.

[Jean Eaglesham]

But State Farm, after the pandemic, kept on selling in these high risk regions. And we talked to lots of independent insurance agents, rival agents, and they all said they were incredibly surprised to see that State Farm would agree to insure very high risk properties.

[Jessica Mendoza]

In other words, inexplicably, State Farm was there.

[Jean Eaglesham]

Like a good neighbor, State Farm is there.

[Jessica Mendoza]

But it turned out State Farm couldn't afford to be there. Through her reporting, Jean found that while the company was aggressively selling policies at low rates, internally red flags were waving. The company was taking on too much risk and they needed to dramatically raise their rates, but they couldn't. In California, insurance companies can only increase rates with the approval of state regulators.

[Jean Eaglesham]

And certainly in 2021, 2022, we found state Farm's own internal indications were that they should have been asking for very big rate increases to match the kind of risks that they were adding up. So they should have been asking for 20, 30% or more, but they kept asking for 6.9%.

[Jessica Mendoza]

A 6.9% rate increase was the most that State Farm could ask for without risking a public hearing from the California insurance regulators.

[Jean Eaglesham]

So you have this old system where State Farm, they're increasing risks, they're putting in very low rate increases, and they're taking on new business that really effectively they're not charging enough for.

[Jessica Mendoza]

State Farm says that its rate requests were made to match price to risk. It added that over the past decade in California, the company has tried to, quote, responsibly, limit overexposure in high risk areas. So why did State Farms stay so aggressive in California, knowing that it was costing their subsidiary like that.

[Jean Eaglesham]

It's really not clear why they were so slow to turn around and stop writing new business and pull back. I mean, I think the company itself would argue that they're owned by policyholders, not by public shareholders. And so they would say, we like to stay in places as long as we can. So they would sort of portray it as a sign of their loyalty, if you like, to the market. Independent agents said to us they don't understand at all what State Farm was doing in those years.

[Jessica Mendoza]

In 2023, State Farm's era of expansion came to an end. With a change in leadership. The California subsidiary got a new chief executive, Denise Harden. She saw the risk State Farm was exposed to and decided it was time to play hardball. Pardon went to the California regulators asking for a rate increase of 28%.

[Jean Eaglesham]

It's a shockingly high level in the context of the California market. For the biggest insurer in that market to say we need 28% just showed how serious things were.

[Jessica Mendoza]

And then in May 2023, State Farm pulled back on new home insurance policies. The move put more pressure on regulators. One former insurance commissioner that Jean spoke to described the move as, quote, crossing the Rubicon. State Farm just announced it has stopped selling new home and business policies in our state.

[Advertisement Speaker]

The new policy went into effect Saturday. The insurance company cited wildfire risks and the skyrocketing costs of construction.

[Jessica Mendoza]

State Farm's announcement was a blow to California's insurance market, and the regulators were faced with a decision.

[Jean Eaglesham]

They really had to act. So in the fall of that year, we saw the regulator essentially say, I'm going to give the insurers pretty much everything on their wish list.

[Jessica Mendoza]

That wish list included approving much bigger rate increases for the state's insurance companies. The regulators also said that State Farm could raise their rates by 20%. But it still wasn't enough for State Farm. In March 2024, they announced that they would not be renewing policies for 30,000 homeowners in California.

[Jean Eaglesham]

Their argument was, we just have too much risk on our books. We're still making a loss on every policy we sell.

[Jessica Mendoza]

We're.

[Jean Eaglesham]

We have to take action now.

[Jessica Mendoza]

State Farm's decision left customers scrambling. Just months later, the fires hit, and the risk that State Farm had unloaded suddenly became California's problem. That's next.

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[Jessica Mendoza]

I participate in restaurants for a limited time. Sandra Kahler had never heard of the Fair Plan until last year. In August, she and her husband were contacted by State Farm, and they were told that the company would stop insuring their home in the Pacific Palisades against fire damage. Her husband began shopping around to find a new policy.

[Sandra Kaler]

Our insurance for State Farm had been something like $3,000. You know, it was never very much. And he called around and we. And I don't know the company, but he found a company that it was going to be $14,000. And we went, that's crazy.

[Jessica Mendoza]

Wow.

[Sandra Kaler]

Yeah. So. So we went back to State Farm and they were at that point encouraging us, telling us, you know, you have to do California Fair Plan. And they made it sound like that was the only game in town.

[Jessica Mendoza]

The California Fair Plan. Was created by the state to make sure all California homeowners have access to basic fire insurance. It typically has high rates and restricted coverage.

[Jean Eaglesham]

The Fair Plan has been getting into increasingly perilous financial situation.

[Jessica Mendoza]

Here's our colleague Jean Eaglesham again.

[Jean Eaglesham]

So with this crisis in the state, the net effect of the insurers pulling back as it's forced many, many more homeowners onto the Fair Plan. And because of the way it operates it, essentially it has to take all comers. So it's skewed towards the highest risks. So a normal insurance company would try and balance its risks. It wouldn't have too much exposure in very dangerous areas. The Fair Plan is the opposite. It's got a ton of exposure in the worst areas. It can't really balance its risks.

[Jessica Mendoza]

To offset that exposure, California regulators require that other insurance companies bail out the Fair Plan in the event of a large scale disaster. Sandra and her husband didn't know about these details. All they knew was that they had to use the Fair Plan to insure against fire. How did the coverage compare between the Fair Plan and your and what you had with State Farm previously?

[Sandra Kaler]

And you know, you just don't think of these things. So I never really read it. You know, I sort of accepted, like, well, we're not going to have a fire. We don't have fire here.

[Jessica Mendoza]

But last month the fires came and the estimated $30 billion in damage was the most expensive in US history. It's truly an apocalyptic scene. We're on the Pacific coast highway right now where home after home after home beachfront properties are engulfed in flames in the Pacific Palisades.

[Advertisement Speaker]

The fire that took so much is still growing.

[Sandra Kaler]

It's devastating.

[Jean Eaglesham]

All my neighbors up across the top, their houses are gone.

[Jessica Mendoza]

Sandra managed to evacuate with her husband and their four pets to a hotel. In the days that followed, she said she spent a lot of time on the phone chasing insurance. Sandra filed a claim with state Farm, hoping they might pay something toward the losses on her house. The claim was denied by an agent.

[Sandra Kaler]

And in the email follow up, he told me he'd pray for me.

[Jessica Mendoza]

What went through your mind with that? I'm looking at your face, you're shaking your head.

[Sandra Kaler]

Well, you know, it was like thoughts and prayers. I've heard it before, but not to me.

[Jessica Mendoza]

Sandra's home was recently appraised at $3.5 million. But she won't get that money back. Fair plan payouts are capped at 3 million. Do you think you'll ever see the money?

[Sandra Kaler]

I do, I do. But I feel like every time I see an article about that the Fair Plan is begging for money from the state and that they've already over budgeted. I'm scared.

[Jessica Mendoza]

The LA fires have put a huge strain on the Fair Plan. The insurer recently estimated that its losses from the fires will top $4 billion. And it doesn't have enough to pay for all of that. So it's getting a bailout. Last week, state regulators agreed to let the Fair Plan collect a billion dollars. And that money is supposed to come from insurance companies like State Farm. And it will. But there's a twist. Last year regulators changed the rules to allow insurers to pass at least half of these costs onto their customers.

[Jean Eaglesham]

So we're now in the process of working out how that's going to be divvied up between the different home insurers. So how much each company will have to pay. They will then in turn say, okay, we want to pass on half of that to our policyholders. And assuming that's agreed, people will then see that amount added to their next home insurance bill. So you can see policyholders are in areas far, far away from the. These fires are going to get an additional charge because of this.

[Jessica Mendoza]

I mean this sounds like pretty bad news for homeowners across the state, even those who aren't anywhere near any of these fire prone or disaster prone areas.

[Jean Eaglesham]

So the whole market is looking very difficult at the moment and the expectation is, yeah, insurance, home insurance unfortunately is going to get even more expensive and even harder to find.

[Jessica Mendoza]

What about State Farm? Where do these fires, where does the situation leave the insurance company?

[Jean Eaglesham]

State Farm in California is saying the fires have put it in a dire financial situation. Now they have billions of dollars in claims coming because despite their non renewals, they're still the biggest home insurer in the market. They still have thousands of policyholders in those affected areas.

[Jessica Mendoza]

State Farm said it's helping people recover from the January fires and has paid more than a billion dollars to affected customers. The insurer has asked for an emergency rate increase of 22%. But last week California state regulators pushed back. In a statement, the insurance commissioner said, quote, the burden is on State Farm. To show why this is needed now. State Farm has not met its burden. State Farm has been asked to make its case at a meeting next week. After the fires, Sandra and her husband decided to accelerate a plan to retire in Hawaii. They'd planned to rent out their Palisades home. Now they're wondering what to do with their burned out lot.

[Sandra Kaler]

You know what I hope I never go back.

[Jessica Mendoza]

Oh, why is that?

[Sandra Kaler]

The palisades again. It's 38 years. It's it that's. That's home. I knew where everything was. So many things burned down. The elementary schools burned down. The high school is a non functional. This like right down the street. The stores, you know, where our kids would go to after school to buy french fries and just hang out and be bad because they were kids. And it's like it's not there anymore.

[Jessica Mendoza]

For Sandra, rebuilding her home is out of the question. One reason for this is she isn't confident she'll get insurance again.

[Sandra Kaler]

To me, it's sort of like it's a place that won't exist anymore.

[Advertisement Speaker]

A whole town.

[Sandra Kaler]

I can't even believe that. But it's a whole town and you know, on a whole lifestyle that won't exist anymore.

[Jessica Mendoza]

That's all for today. Wednesday, February 19 the Journal is a co production of Spotify and the Wall Street Journal. Additional reporting in this episode from Susan Pulliam. Thanks for listening. See you tomorrow.