Last month, the insurance company State Farm announced it would no longer issue new property insurance policies for residential or commercial customers in California. This decision has immediate implications for California farmers, many of whom need real solutions for this season. It also portends future issues for farmers in getting the necessary insurance coverage to protect their infrastructure in many other states.
It can be difficult to overstate the role of insurance in American commerce. To quote an insurance executive in an excellent article on climate change and insurance, “Nothing happens without insurance. Airplanes don’t fly; hospitals don’t get built, lawyers don’t practice.” She might also have said: “Farmers don’t farm”. Like most businesses, many farms depend on loans to purchase or build infrastructure. The lenders providing that money in turn demand that the infrastructure be insured against loss. Without insurance, farms often don’t have access to capital or the resources to rebuild after a disaster.
Finding insurance just got harder for farms in California. State Farm, which has held a market share of 20% of the home and 13% of the state’s commercial property and casualty insurance, will no longer issue new policies. State Farm isn’t the first insurer to exit the California market with American International Group (AIG) and GEICO also limiting coverage. As profit-generating businesses with responsibilities to shareholders, these companies are making what they see as smart financial decisions to avoid exposure to excessive losses. The risk is real: insurance companies in high-risk locations are facing liquidation after wildfire disasters.
What happens when insurers decline to cover an entire state? Considering the dire economic implications for businesses and homeowners, states usually step in with a program that provide “last resort” options for folks that can’t access insurance in the regular marketplace. In California, the state-operated FAIR Plan provides an option. Prior to 2021, the FAIR Plan did not provide coverage for farm property. Today, farm coverage is available through the FAIR Plan. However, expensive premiums and difficulty finding comprehensive options still bedevil farmers in California who use the FAIR Plan. Advocates continue working to ensure farmers can still find effective commercial coverage through the state-run backstop as described in this article from the California Farm Bureau Federation.
It’s not just California. Florida, Texas, and Louisiana have seen insurers pull back because of hurricane risk. Their state-run programs are also seeing a surge of applicants from those unable to find other insurance. These state-run programs face fiscal crises of their own if expenses from claims exceed revenue from premiums and public support. Farmers in these states can also expect the continuing difficulty experienced by their California peers in securing affordable, comprehensive commercial farm property coverage through state-sponsored insurers of last resort.
As climate changes bring new risks and different impacts to producing food, an understanding of how property insurance works is essential to running a farm or ranch operation. Farm Commons is excited to continue contributing to this conversation with our new resources Farm Property Insurance Basics and Farm Property Insurance Strategies. Farmers using these guides will be better able to communicate with their insurance agents in securing the coverage that works best for their farm, no matter where they are located.