State Farm, California’s largest insurer, has filed an emergency request with the state for a 22% rate hike on homeowner policies, citing a “dire situation” for both customers and the insurance industry. The company argues that the increase is necessary to remain financially stable, especially in the aftermath of the recent Los Angeles wildfires.
State Farm officials reported receiving more than 8,700 claims related to the wildfires and said they have already paid out over $1 billion. In addition to the 22% increase for homeowners, the company is seeking a 15% hike for renters and a 38% increase for rental dwellings, with the proposed changes set to take effect on May 1.
“We know we will ultimately pay out significantly more, as these fires will collectively be the costliest in the history of the company,” State Farm President/CEO Dan Krause and other company leaders wrote in a letter to California Insurance Commissioner Ricardo Lara. “Although reinsurance will assist us in paying what we owe to customers, the costs of these fires will further deplete capital from (State Farm).”
The request comes after State Farm announced in May 2023 that it would stop issuing new policies in California. The company later revealed that it would not renew 72,000 existing policies, including 29,000 homeowner policies. However, it recently stated that renewals would be offered to some wildfire-impacted homeowners.
“The high concentrations of risk covered by (State Farm) in the fire footprint will generate a direct loss many times larger than the company’s pre-event surplus,” Krause wrote. “(State Farm’s) already stressed financial position will be further weakened, even after accounting for billions of dollars in anticipated recoveries from a prudently robust reinsurance program that includes State Farm Mutual Automobile Insurance Company as the primary reinsurer.”
A spokesperson for the California Department of Insurance, Gabriel Sanchez, responded to the request, stating that it raises “serious questions” about the company’s financial situation.
“State Farm General continues to collect insurance premiums paid by Californians and pay out claims to its existing customers,” Sanchez said. “There is no law or regulation that prevents an insurance company from continuing to bill customers for premiums in a wildfire emergency. The commissioner’s moratorium authority only applies to cancellations and non-renewals.”
