State Farm General wants to raise homeowner insurance rates in California by an average of 22 percent to stanch what it called “dire financial straits” in the wake of the L.A. fires.
The property insurer — a subsidiary of Illinois-based State Farm Mutual Automobile Insurance — asked state officials for an emergency rate increase of 38% for rental buildings, and 15% each for condo owners and renters, the Los Angeles Times and the Orange County Register reported.
State Farm General said the firm has received more than 8,700 claims resulting from the Jan. 7 wildfires that destroyed thousands of homes around Pacific Palisades and Altadena.
The largest insurer in the state, State Farm has also paid more than $1 billion to customers — and expects to pay out “significantly more” to help rebuild from what will likely be the costliest natural disaster in Los Angeles County history.
The requested rate increases come after State Farm asked state permission this summer to jack up insurance rates by a third to keep from going broke. The request included a 36 percent increase for condo owners and a 52 percent increase for renters.
The company is seeing signs of rapid deterioration of its capital structure, according to the letter sent to Insurance Commissioner Ricardo Lara.
“As the insurance commissioner, you can have a very significant impact on [State Farm General’s] ability to continue operating in California by immediately approving the requested interim rate changes,” Dan Krause, CEO, State Farm General, said in the letter.
Krause wants Lara to take “emergency action” to help protect California’s fragile insurance market by immediately approving interim rate increases on its filings, with rates to become effective May 1.
He said the increases are needed to help rebuild the company’s capital base so the firm will not have to “further constrain” the company’s ability to provide home insurance.
“We know we will ultimately pay out more, as those fires will collectively be the costliest in the history of the company,” Krause told the state insurance commissioner.
The California insurer said it has lost $2.8 billion over a nine-year period ending last year, including gains from investment income.
It also said State Farm General’s financial rating was downgraded last year by AM Best. The company said it will access reinsurance it acquired from its parent to pay claims from the Los Angeles-area fires.
Consumer Watchdog, a Los Angeles-based advocacy group, disputed that State Farm General was in financial trouble, saying that the company made underwriting profits of $1.4 billion from 2020 to 2023, and that parent State Farm Mutual had “$134 billion in the bank.”
In 2023, State Farm General had about a fifth of the homeowners insurance market in California, insuring about 1 million homeowners, along with 1.8 million other policies.
State Farm said it is prepared to issue refunds for customers who pay the interim emergency rates if the insurance department approves lower increases for the rate hikes it sought last year.
The company received a 6.9 percent bump of its homeowner rates in January 2023 and a 20 percent hike that went into effect in March of last year.
The Department of Insurance said it would approve this week’s rate hike request only if it is justified under Proposition 103, the 1988 ballot measure that gave the commissioner the authority to review, adjust and reject proposed rate hikes.
The proposed hike will impact “homeowners in other parts of the state who had no part in this disaster,” Consumer Watchdog executive director Carmen Balber told the Register.
California is undertaking regulatory reform to stem an exodus of insurers by basing rate hikes on future estimates of damage, rather than actual fire losses over past decades. The old insurance rules, however, may justify huge rate hikes because of tens of billions of dollars in L.A. County wildfire losses.
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