State Farm Limits Home Coverage

Two months after slapping a moratorium on new homeowner business in California, loss-plagued State Farm Insurance Cos. said Thursday that it is limiting homeowner policies in 21 other states.

State Farm, the nation’s largest insurer of homes, began notifying regulators in the states this week, saying the cuts are needed to counter a net loss of $5 billion in 2001, when natural disasters, large claims for water damage and higher construction and medical costs caused payouts to increase dramatically.

“Growth in insurance is not always a good thing,” said Phil Supple, a spokesman for the Bloomington, Ill.-based insurer, explaining that refusing new business shelters the company from additional liability.

The 15 million U.S. homeowners who already have State Farm policies are unaffected, the company said.

For years, State Farm had led an industry battle aimed at winning new customers by keeping premiums low. But that “soft” insurance market has turned hard of late, with claims rising and investment earnings down.

One deciding factor was when the company’s California home insurer, State Farm General Insurance Co., was placed on credit watch by Standard & Poor’s and downgraded from A-minus to B-plus by A.M. Best.

“In our culture that’s unacceptable,” said State Farm spokesman Bill Sirola. “We have a tradition of offering our policyholders the highest levels of financial strength.”

Decisions on temporarily refusing or curtailing new business are being made at the company’s 13 regional offices. The company will “return to the marketplace when the business environment allows us,” Supple said.

In addition to the California moratorium on new homeowner business, State Farm is no longer issuing homeowner policies for new customers in Arkansas, Kansas, Louisiana, Missouri, Oklahoma, Texas, Montana, Oregon, Washington, Idaho, Hawaii, Alaska, Maryland, West Virginia and parts of North Carolina.

It also has restricted sales in Arizona, New Mexico, Colorado, Utah, Nevada, Virginia and Wyoming. There is a cap on the dollar amount of new insurance that will be written in those states, Supple said.

Other companies also have cut back on new policies through tougher underwriting or have placed moratoriums on new policies, said Adam Klauber, an insurance analyst for Cochran, Coronia & Co. State Farm’s retrenchment could make it harder for consumers to get coverage in areas where obtaining homeowners’ insurance is already difficult, he said.

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Times staff writer E. Scott Reckard contributed to this report. Associated Press was used in compiling it.