State Farm announced Wednesday that it plans to drop 72,000 insurance policies in California, citing inflation and several other issues.

According to a recent State Farm press release, the insurance company will either withdraw or not renew tens of thousands of policies "on a rolling basis over the next year, beginning on July 3, 2024." The decision will impact homeowners, business owners, commercial apartments, and residential community associations.

The insurance company stated that it is "working to ensure its long-term sustainability in California," noting that the non-renewals and withdrawals "represent just over 2% of State Farm General's policy count" in the state.

"This decision was not made lightly and only after careful analysis of State Farm General's financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations," State Farm's press release read.

The company said, "It is necessary to take these actions now."

California Insurance Commissioner Ricardo Lara responded Friday to State Farm's recent announcement.

"This is a real crisis," Lara told KABC's Eyewitness News. He stated that he would like to review the company's finances.

"Insurance companies are not like utility companies," he explained. "By law, they don't have to be here, and when we try to overregulate, we'll see what happened after the Northridge earthquake, when the legislature came in and tried to overregulate, and they no longer write earthquake insurance in California."

According to Lara, the current model insurance companies use to assess risk is "a black box."

"We're going to change that to be much more transparent," he declared. "We bring the risk down in these communities, we keep insurers writing, then you get more insurers writing, you bring down the cost."

Individuals whose policies are impacted by State Farm's latest announcement are encouraged to notify the California Department of Insurance.

"We will make sure we have an insurance expert with you so that we help you transition and connect you with insurance companies who are writing policies in California," Lara added.

Carmen Balber, with Consumer Watchdog, told KABC that the insurance provider's decision to cancel tens of thousands of policies demonstrates that Lara's "plan is not working."

"We have been urging for years now that California require insurance companies who want to sell home or auto insurance in California, sell to everyone who does the right thing and it protects their homes. We urge the insurance commissioner to support that policy change, which needs to go through the legislature," Balber stated.

In 2022, Allstate stopped providing home insurance policies to new California customers, citing increased wildfire risks and an uptick in construction costs, the Associated Press reported.

"The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes and higher reinsurance premium," Allstate stated at the time.

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