State Farm seeks emergency rate increase averaging 22% after L.A. fires
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State Farm General, California’s largest home insurer, asked state officials for an emergency rate hike averaging 22% Monday, claiming the Los Angeles County fires have put the company in dire financial straits.
The insurer, a subsidiary of State Farm Mutual Automobile Insurance Co. of Bloomington, Ill., said the company has already received at least 8,700 claims and paid more than $1 billion to customers. It expects to pay out “significantly more,” with the fires being the costliest natural disasters in its history.
“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,” the company said in a letter to state Insurance Commissioner Ricardo Lara.
The company is also asking for rate hikes of 38% for rental dwellings and 15% for tenants, with the rates taking effect May 1.
State Farm said the latest request is necessary to rebuild the company’s capital base, so it will not have to “further constrain” the company’s ability to provide home insurance in the state. Insurance industry ratings agencies have said they expected premium increases due to the fires.
Before the devastating fires burned across Los Angeles, many homeowners learned they were losing their insurance policies. Some faced big increases in premiums that they couldn’t afford.
The California insurer claimed it has lost $2.8 billion over the nine-year period ending last year, including gains from investment income. It also noted 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 fires.
State Farm General, which had about a 20% share of the homeowners insurance market in 2023, insures about 1 million homeowners in the state, and also has 1.8 million other policies in force.
The proposed rate hike is likely to be controversial. Last June, the company filed for a 30% rate increase for its homeowners polices, a 36% increase for condo owners and a 52% increase for renters. That request took state officials by surprise, with Lara saying it raised “serious questions about its financial condition.”
That rate hike request is still pending. State Farm said it is prepared to issue refunds for customers who pay the interim emergency rates if the department approves lower increases for the rate hikes it sought last year.
The company previously received a 6.9% bump of its homeowner rates in January 2023 and a 20% hike that went into effect in March of last year.
“To protect millions of California consumers and the integrity of our residential property insurance market, the department will respond with urgency and transparency to recommend a course of action for Commissioner Lara,” the state Department of Insurance said Monday in response to the request.
The department added any rate hike would only be approved if it is justified under Prop 103, the 1988 ballot measure that gave the commissioner the authority to review, adjust and reject proposed rate hikes.
Los Angeles advocacy group Consumer Watchdog disputed that State Farm General was in financial trouble, claiming the company made underwriting profits of $1.4 billion from 2020 to 2023, while parent State Farm Mutual had “$134 billion in the bank.”
“Filling State Farm’s bank accounts shouldn’t fall on the backs of California homeowners recovering from disaster,” it said.
State Farm is seeking a 30% rate hike, claiming its California unit is in financial trouble. Consumer Watchdog alleges the home insurer is hiding earnings.
State Farm Group, led by State Farm General’s parent company, was given a superior financial rating in December by AM Best.
In March, the company announced it would not be renewing 72,000 home, apartment and other property policies in California, citing soaring reconstruction costs, increasing wildfire risks and outdated state regulations.
That followed its decision in May 2023 to stop writing new business, homeowners and other personal property and casualty insurance in the state, with the exception of personal auto insurance.
Last month, after the scale of the L.A. fires became apparent, State Farm modified its decision and said it would offer renewals to any policyholder affected by the Palisades, Eaton and other county fires whose policies had not yet lapsed prior to the fires’ start on Jan. 7.
The insurer estimated that it would apply to roughly 70%, or 1,100, of the 1,626 residential policies it had in Pacific Palisades’ primary ZIP Code when it announced the nonrenewals last year.
It later expanded the renewal offer to any Los Angeles County policyholder on those same terms. The company said it had about 250,000 residential policyholders in the county.
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