State Farm Puts Moratorium on Calif. Homeowners’ Insurance

April 22, 2002

Saying the company’s top priority is to its current customers, State Farm has put a moratorium on issuing homeowners’ policies in California until further notice.

“We’ve been facing some real financial challenges with the homeowners company (State Farm General) in the state,” State Farm spokesman Bill Sirola commented. “As was apparent at the beginning of the year when A.M. Best downgraded the rating of the company and when Standard & Poor’s placed it on Credit Watch, we’re facing some challenging times with finances. We’ve been reviewing options and looking at internal operations. Our first and primary obligation is to our existing customers, so we felt it best to close off accepting any new customers until the company regains the kind of financial strength we would like.”

According to Sirola, a timetable is not set in stone on plans to change the present thinking. “Until further notice, it just depends on how fast we can rebuild the policyholder protection fund in the general company.” State Farm has approximately 1.5 million customers with homeowners insurance in the state.

“This was a management decision and it has been under review since last year,” Sirola continued. “We knew the financial results of General were deteriorating and knew that steps would have to be taken at some point. We have been filing for rate increases, and felt on behalf of our customers, this was the best option we had available. We’re still rated B+ by Best, meaning we’re still a fundamentally solid company. It has no impact on our current customers.”

When asked if other companies would jump at a possible opportunity to round up new business due to the move, Sirola remarked, “it is not a fear, it is a realization. We’re not happy with the decision we had to make. We have what we feel to be one of the most important obligations of any company of any kind in the United States and that is to make sure we’re there when they need us. Growth isn’t as important as service.”

Asked to point to a reason or two why this happened, Sirola pointed out, “there are two reasons this happened. One, it is obvious in hindsight that our rates were inadequate, and two, that inadequacy was certainly amplified by fact that the cost of claims have increased much faster than anyone would have expected.”

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