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State Farm letterhead carries a request to the state's insurance commissioner to allow a rate increase following LA County's wildfires. | Image courtesy of State Farm
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State Farm, the largest insurance company in California, asked the state Monday for an emergency 22% rate increase for homeowner policies in an attempt to prevent a “dire situation” for customers and the insurance industry in the state.
In the wake of the LA wildfires, the company has so far received more than 8,700 claims and has paid out more than $1 billion, State Farm officials said.
“We know we will ultimately pay out significantly more, as these fires will collectively be the costliest in the history of the company,” President and CEO Dan Krause and other company executives 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).”
Krause added that “with nearly three million policies in force, including more than one million homeowners customers, (State Farm) needs your urgent assistance in the form of emergency interim approval of additional rate to help avert a dire situation for our customers and the insurance market in the state of California.”
The company asked Lara to immediately approve interim rate increases effective May 1 — 22% for homeowners, 15% for renters and 38% for rental units.
In May 2023 State Farm announced it would stop writing new policies in California, and the following year it said it would not renew 72,000 policies, 29,000 of which were held by homeowner. The company said recently, however, it would offer renewals to homeowners recovering from wildfire losses.
“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. The company’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.”
The California Department of Insurance did not immediately respond to a request for comment.
Agency spokeswoman Gabriel Sanchez said in a statement to the Southern California News Group that State Farm’s request to increase rates raises “serious questions” about the company’s financial position.
“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.”
