State Farm General Insurance Company, one of the largest insurers in the US, has stopped accepting insurance applications from California’s homeowners due to growing risk from wildfire and other catastrophes and the rising cost of rebuilding. 

The change applies to personal and commercial property and follows AIG’s decision to limit the cover it offers in California. State Farm will still serve existing customers and offer motor insurance.  

The insurer says it made the change due to construction costs outpacing inflation, rapidly growing catastrophe exposure and a challenging reinsurance market. 

"It's necessary to take these actions now to improve the company's financial strength," it said. 

The withdrawal comes after 2018’s Camp Fire which destroyed 11,000 homes in the state and triggered huge insured losses, a jump in premiums and tougher underwriter requirements. After that fire, California ruled insurers could not cancel or refuse to renew residential property policies due to wildfire risk for a year and must offer to reinstate or renew policies in place in October 2018 in nominated postal codes. 

The mandatory one-year moratorium covered more than 800,000 policies and was designed to address a growing insurance availability crisis for hundreds of thousands of Californians after three straight years of extreme wildfires. 

“We pledge to work constructively with policymakers to help build market capacity in California,” State Farm said. 

"We recognise the Governor’s administration, legislators, and the California Department of Insurance for their wildfire loss mitigation efforts. We will continue to evaluate our approach based on changing market conditions.” 

State Farm is the largest provider of auto and home insurance in the US, with more than 91 million policies and financial services accounts, including auto, fire, life, health and commercial policies. It is ranked 42nd on the Fortune 500 list of largest companies. 

The Camp fire in Northern California was the costliest single natural disaster in the world for insurers in 2018, resulting in $12.5 billion ($19.17 billion) in covered losses, Munich Re said.