Sacramento Report: What State Farm’s Insurance Cuts Mean to San Diego

State Farm is cutting property insurance coverage in California and won’t renew policies for 72,000 properties throughout the state, including more than 2,000 in San Diego County.

In San Diego County, the company plans to eliminate half its coverage to the affluent community of Rancho Santa Fe, denying renewals for 713 out of 1,421 policies. Other areas facing major cuts include Alpine, Chula Vista, Jamul, Lakeside and El Cajon.

County Supervisor Terra Lawson-Remer, who represents Rancho Santa Fe, said homeowners should not be “left to trust the black box of insurance algorithms to determine rate increases.” 

“State Farm is not a good neighbor and I’m angry,” she said in a statement to Voice of San Diego. “The State’s insurance system is broken and there is difficult work ahead, but instead of coming to the table to be part of the solution, State Farm left homeowners high and dry.”

Lawson-Remer said she met with the California Insurance Commissioner’s team to discuss options for homeowners and is exploring what the county can do to help. 

State Farm’s announcement marks the latest round in insurance giants’ retreat from California. Last year both State Farm and Allstate announced that they would cease writing new policies in the state. Other insurers quickly followed suit.

Last month State Farm announced that it would not only deny new policies, but also eliminate existing policies as their terms expire, cutting 30,000 homes and 42,000 apartments statewide, starting July 3.

State Farm executives cited increasing liability claims and rising costs to rebuild damaged homes. 

The math behind the contraction: Insurance industry experts said the retrenchment represents an effort to balance State Farm’s revenue from premiums with its cost from claims.

California burned at a record rate in recent years, with fires torching more than 1.5 million acres in 2017 and nearly 2 million acres in 2018. 

Despite those catastrophes and the resulting claims, State Farm kept writing new policies in California and raising its market share, said Rex Frazier, president of the Personal Insurance Federation of California.

“They grew, and they grew unprofitably, and it led to a pretty extreme drain of their capital,” he said. 

The company’s surplus of $4.1 billion in 2016 dwindled to $1.3 billion last year, he said, which could compromise its ability to pay claims. That meant it had to scale back. State Farm didn’t disclose how it chose which homes to cut, but Frazier said price and geography can play a role.

“Typically a company will look at what is the smallest number of homes they can non-renew that makes the biggest reduction in their risk ratio,” Frazier said. “You’ll see there’s a lot of higher net worth areas, where the home replacement costs are huge.”

That brings us to Rancho Santa Fe. Last year the estate community ranked as the 10th most expensive home market in the nation, with median home prices at $4.2 million last year, and $5.2 million in March. Replacing one home there could cost as much as building several houses elsewhere.

So why are they cutting policies in the backcountry? With home prices in areas such as El Cajon and Campo well below the county median, some east county areas facing State Farm cuts don’t fit that high-end profile. 

What they might have going against them are hazardous landscape features, such as steep slopes, brush and creek beds. In other words, the same picturesque qualities that draw people to those spots to begin with. 

“If you’re in a remote area, people live there because they want to live in natural beauty,” Frazier said. “They’re not eager to have a bunch of machines cut down trees and take out brush.”

Still, San Diego has done its share to tackle fire hardening and prevention, so the insurance market should reflect that, said Lori Holt Pfeiler, president and CEO of the Building Industry Association of San Diego. SDG&E hiked power rates to cover the upgrades, but the non-renewals suggest that rate-payers aren’t getting the benefits of those investments, she said, calling the cuts “short-sighted.”

Upcoming changes to state regulations could stabilize the insurance market, said Janet Ruiz, a spokesperson for the Insurance Information Institute. In the meantime, she said, homeowners facing policy loss should compare rates and check with brokers. If you must use California’s high risk FAIR plan, try to switch back to a commercial plan as soon as you can. 

“You really have to shop,” she said.

Public Camping Ban Fails in Committee

A bill to ban public camping throughout the state died in committee Tuesday, but the city of Vista will take up a local ordinance to clear homeless encampments, Mayor John Franklin said.

SB 1011 was modeled after a San Diego camping ban, and would have prohibited camping on sidewalks if a shelter bed was available, and around sensitive areas such as schools and transit stops at all times. It failed on a 3-1 vote in the state Senate Public Safety Committee Tuesday. 

This was the second time Senate Minority Leader Brian Jones, R-San Diego, brought the proposal forward, this time with bipartisan support from co-author Sen. Catherine Blakespear, D-Encinitas.

Committee Chair Aisha Wahab, D-Fremont, argued that the bill would criminalize homelessness. Sen. Nancy Skinner, D-Oakland, said it made the problem invisible without solving it, but noted that any city can consider a public camping ban.

That’s what Vista will do, said Franklin, who testified on behalf of the bill Tuesday. He plans to propose a camping ban to the City Council in the next few weeks, saying it will include elements of the San Diego ordinance and the state bill.

Vista isn’t the only North County city to follow San Diego’s lead. Our Tigist Layne reports that Escondido recently adopted a  “public safety first” approach to addressing homelessness, inspired by policies  in Huntington Beach.

Blakespear Drops End of Life Bill

Weeks after announcing her End of Life Options Act, SB 1196, state Sen. Catherine Blakespear, D-Encinitas, said she is withdrawing the bill. 

The bill would have changed the time limits and medication choices of the current law, and expanded the option for medical suicide to those in early stages of dementia. 

In a statement this week, Blakespear said that she had received calls in support of the bill, but other lawmakers weren’t on board: “There is a reluctance from many around me to take up this discussion, and the future is unclear.”

The Sacramento Report runs every Friday and is part of a partnership with CalMatters. Do you have tips, ideas or questions? Send them to me at deborah@voiceofsandiego.org. 

Correction: This post has been updated to correct Minority Leader Brian Jones’ political party to R-San Diego.

Correction: This post has been updated to correct the vote on SB 1011. It failed by 3-1.