State Farm Says Homeowners Coverage Crisis Looms

State Farm Mutual Automobile Insurance Co., the largest property insurer in California and the United States, warned Tuesday of a “looming crisis” in California homeowners insurance precipitated by the withdrawal of two major insurers from the market after the Northridge earthquake.

“Without immediate action to pass a rational plan to provide relief, additional companies will be driven from the market,” State Farm President Edward B. Rust Jr. told Gov. Pete Wilson and state Insurance Commissioner John Garamendi in letters the insurer released Tuesday.

Facing massive losses from the Jan. 17 earthquake, 20th Century Insurance Co. and Farmers Insurance Group recently halted their writings of new earthquake and homeowners policies.

20th Century is abandoning the two lines of coverage permanently. Farmers, No. 3 in California homeowners insurance, called its action temporary but set no date for resuming sales.

Other carriers, including State Farm--which has more than 25% of the California market--have cut back on sales of earthquake and homeowners policies.

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The result, according to an insurance agents trade group, is that consumers are having trouble finding coverage.

Wilson’s insurance adviser, Marjorie M. Berte, said last week that the governor is concerned that an availability crisis in homeowners insurance could hurt real estate sales and the economic recovery.

Garamendi will outline his proposals to address the problem today, a spokeswoman said.

Rust called for a meeting of “all interested parties” to discuss possible solutions to the problem.

State Farm, based in Bloomington, Ill., proposes creating a statewide, industry-supported earthquake insurance pool that would help reduce individual carriers’ exposure to catastrophes, spokesman Bill Sirola said.

The proposal would eliminate the state law requiring that any insurer selling homeowners insurance also offer earthquake coverage, Sirola added, but it would also restrict an insurer’s ability to leave the market and dump all its earthquake policies into the pool.

State Farm and other insurers have also endorsed the proposed Natural Disaster Protection Act, federal legislation that would create a national, industry-financed pool to help cover catastrophes.