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Bay Area zip codes top list where State Farm to discontinue homeowners insurance policies

Thousands of Bay Area residents faced with State Farm refusing to renew home insurance policies
Thousands of Bay Area residents faced with State Farm refusing to renew home insurance policies 03:19

State Farm, California's largest insurer, has disclosed state zip codes where it will discontinue homeowners insurance coverage, with Bay Area counties topping the list.

Last month, the Illinois-based insurer announced it would discontinue coverage for 72,000 houses and apartments in California starting this summer, nine months after announcing it wouldn't issue new home policies in the state.

In one zip code, 95033, in the Santa Cruz mountains, more than 65% of policies will be ending.  And in 95409 near Santa Rosa, nearly 48 percent. But in the entire state, the area with the most policies being non-renewed is the small Contra Costa County city of Orinda. 1,703 of the 3,115 State Farm policies -- nearly 55% -- will not be continued. Another 956 policies in neighboring 94549 will also not be renewed.

"The changes are coming faster than the very fire everyone's worried about," said Tom Stack, a local real estate agent with Coldwell Banker in Orinda. He said finding home insurance in the town has become so erratic that he's advising people to check for coverage before they start house hunting in the area.

"And the refrain is, 'I've never had a claim! I've had 'em 20, 30 years!' People are insulted, disgusted, upset," said Stack. "There is some reality to this and, to that degree, I understand. But the pendulum has swung so far in one direction that it's paralyzed. It's just now really grinding to a halt. When the big name players leave, that's really when it gets to be a problem." 

Los Angeles County zip codes 90272, 90049 and 91302 follow on the list, each location with more than 1,000 policies discontinued. Zip code 95033 in Santa Clara/Santa Cruz County also has more than 1,000 policyholders that will be dropped. Rounding out the top ten are Sonoma County zip codes 95409 and 95404 with some 1,400 policies not renewed in Santa Rosa and communities east.

Caballo Ranchero Drive, in the small township of Diablo near Danville, is lined with lovely -- and expensive -- homes.  But when Ron Aghazarian moved there he got a surprise from State Farm.

"We moved here from Pleasanton and we had State Farm there for many years," he said.  "When we purchased this house, we thought we would just roll over the policy from there to cover this home.  And they told us they wouldn't insure out here. They were not writing policies in this area."

His home is in the 94528 zip code. In July, more than half of the 152 State Farm policy holders in the area will be told that their insurance will not be renewed. Insurance broker Karl Susman talked to CBS Bay Area about why this is happening.

"As the market was tightening down and many insurance companies were stopping new coverage altogether, for some reason State Farm kept writing," he said.  "And they were writing in areas that most carriers would not have written in ever.  So we were a bit perplexed about what the move was, what the game plan, was with that. So when State Farm's coming out now, being the first one to actually start non-renewing homes in what is considered above-average for fire risk, it doesn't surprise us too much."

State Farm blames an increased risk of catastrophes wildfires, outdated regulations, and higher costs as reasons it won't renew the policies.

Last summer, State Farm said it would no longer accept applications for all business and personal lines of property and casualty insurance, citing inflation, a challenging reinsurance market and "rapidly growing catastrophe exposure."

The company said the discontinued policies this summer account for just over 2% of its California policies. 

State Farm says it will begin sending out notices to homeowners on July 3rd, but they point out that non-renewal is not a cancellation. Current policy holders will retain coverage until their current contracts expire.  

Those who lose their insurance may have to join the California FAIR Plan, the state's insurer of last resort.  Besides being expensive, Susman said that program has become so overwhelmed with applicants that it can now take weeks just to get a quote. And plan operators say one big wildfire could throw the whole thing into insolvency. There simply aren't many good options for homeowners in high-risk areas.

"When I say they have few choices, I'm being kind!  Some may literally have no choices. If they're too large for the California FAIR Plan, then they're going to have to talk with a broker to try to get a policy that could be through Lloyds of London," said Susman. "And we could be looking at premiums -- without exaggerating -- of 30, 40, 50 thousand dollars a year! Outrageous! But that's exactly what you expect to see when there's no competition, right?" 

But he said there could be hope for the future. The state is looking to change regulations that would allow insurers to price policies on a home-by-home basis, something that's not currently allowed. Susman says that should attract insurers back to the market, allowing them to assess risk on more factors than just a zip code.

Carlos Castaneda contributed to this report.

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