California Insurance Commish to State Farm: Go Pound Ashes

State Insurance Commissioner Ricardo Lara has turned down a request by State Farm General to raise home insurance rates by an average of 22 percent because of the Los Angeles wildfires.

Lara denied the increase to the unit of Illinois-based State Farm Mutual Automobile Insurance, saying the company failed to prove it was warranted, the Los Angeles Times reported.

State Farm this month had sought the emergency rate increase of 38 percent for rental buildings and 15 percent each for condo owners and renters. The new rates were to go into effect May 1.

The state’s largest insurer had said it had received nearly 9,000 claims and paid out more than $1 billion to customers resulting from the Jan. 7 wildfires that destroyed thousands of homes around Pacific Palisades and Altadena.

The company said it needed the hikes to replenish its capital stemming from the costs of the fires as it waits for a decision on another request for a rate hike filed last year, to avoid going broke.

Lara said State Farm General had failed to prove it needed the latest increase, or to explain how the additional premium dollars would affect its prior decisions to stop writing new home policies in California and not renew existing policyholders.

“My goal is to make sure policyholders do not have to pay more than is required,” he wrote in a letter to State Farm posted on the insurance department’s website.

“In light of the recent Los Angeles wildfires, State Farm’s customers need real answers about why they are being asked to pay more and what responsibility the company’s leadership is taking to get its financial house in order.”

S&P Capital IQ estimates the State Farm General losses from the L.A. County fires will total $6.5 billion, prior to reinsurance payments.

“We have gone to great lengths to clearly answer the questions outlined by the Commissioner,” State Farm General said in a statement. “While we’re positioned to handle all of the claims associated with the most recent wildfires, State Farm General must seriously consider its options within the California insurance market going forward.”

Last March, the company announced it would not renew 72,000 home, apartment and other property policies in California, citing wildfire risks and other concerns.

That followed a decision in May 2023 to stop writing insurance for new businesses, homeowners, and other personal property and casualties in the state, with the exception of personal auto policies.

In June, State Farm requested a 30 percent rate increase for its homeowners policies, as well as other rate hikes, which await a decision. The request took state officials by surprise, with Lara saying it raised “serious questions about its financial condition.”

Insurance industry ratings agencies have said they expected premium increases due to the fires.

State Farm General said it’s lost $2.8 billion over the last nine years, including gains from investment income. It also noted its financial rating was downgraded last year by AM Best. State Farm Group, led by State Farm General’s parent company, was given a superior financial rating in December by the ratings agency.

— Dana Bartholomew