State Farm General, California’s largest home insurer, is seeking an emergency rate increase averaging 22% after incurring significant financial losses from the recent Los Angeles County wildfires. The company has already received 8,700 claims and paid over $1 billion in damages, with expectations of further payouts. The requested increase, submitted to state regulators on Monday, aims to stabilize the company’s finances and sustain its ability to provide insurance in the state.
Financial Strain and Justification for Rate Hike
State Farm General has cited dire financial conditions as the primary reason for its request. Despite investment gains, the company reported a cumulative loss of 2.8 billion over the past nine years. Additionally, AM Best downgraded State Farm General’s financial rating last year, highlighting concerns about its financial health. To cover ongoing claims, the insurer plans to access reinsurance from its parent company, State Farm Mutual.
The requested increases include:
- 22% for homeowners
- 38% for rental dwellings
- 15% for tenant policies
If approved, the new rates would take effect on May 1. The company has also stated that if a lower rate increase is approved for its pending 2024 request, customers who paid the emergency rates will receive refunds.
Industry and Regulatory Response
The California Department of Insurance responded by emphasizing that any rate hike must comply with Proposition 103, the 1988 law that requires the insurance commissioner to review and approve rate adjustments. Commissioner Ricardo Lara has committed to an urgent but transparent review process to determine the appropriateness of the requested increase.
However, consumer advocacy group Consumer Watchdog disputes the necessity of the rate hike, arguing that State Farm General turned an underwriting profit of 1.4 billion between 2020 and 2023 and that its parent company, State Farm Mutual, has 134 billion in reserves. The organization contends that California homeowners should not bear the burden of increasing the company’s capital base.
Policyholder Impact and Future Coverage in California
State Farm General’s approach to its California operations has been under scrutiny. In March, the company announced it would not renew 72,000 homes, apartments, and other property policies, citing rising reconstruction costs and increased wildfire risk. It had previously stopped issuing new home and property policies in the state as of May 2023. However, in response to the L.A. fires, the insurer modified its stance, offering renewals to policyholders affected by the fires whose policies had not lapsed before January 7. This decision impacts approximately 1,100 homes in Pacific Palisades and extends to about 250,000 residential policyholders across Los Angeles County.
Looking Ahead
State Farm General’s emergency rate hike request follows a broader trend of insurers reassessing their risk exposure in California. With wildfire damage increasing, regulatory decisions on rate hikes could set a precedent for how insurers balance financial sustainability with consumer protection. The state’s response to this request will likely have lasting implications for the availability and affordability of home insurance in California.