State Farm General, California’s biggest home insurance business, requested an emergency rate increase of about 22% on Monday. They said the fires in Los Angeles County have put them in a tough financial situation.
The insurance company, part of State Farm in Bloomington, Illinois, reported that it has received over 8,700 claims and has paid out more than $1 billion to customers. It anticipates paying out much more because the fires are the most expensive natural disasters they have ever faced.
In a letter to state Insurance Commissioner Ricardo Lara, the company stated that he can greatly influence [State Farm General’s] ability to keep working in California by quickly accepting the proposed temporary rate changes.
The company wants to raise rents by 38% for rental homes and 15% for renters, starting on May 1.
State Farm said that the latest request is needed to strengthen the company’s finances so it can keep offering home insurance in the state without any limitations. Insurance ratings agencies believe that premiums will go up because of the fires.
The California insurance company reported a loss of $2.8 billion over the nine years that ended last year, even after considering money made from investments. It also mentioned that AM Best lowered State Farm General’s financial ranking last year. The company announced it will use protection from its parent to cover claims from the fires in the Los Angeles area.
In 2023, State Farm General held around 20% of the homeowners insurance market. They provide insurance for about 1 million homeowners in the state and have 1.8 million other active plans.
The suggested rate increase may cause some disagreement. In June, the company requested to raise rates by 30% for homes, 36% for condo owners, and 52% for renters. State officials were caught off guard by the request, and Lara mentioned it raised “serious questions about its financial situation.”
The request for the rate increase is still waiting for a decision. State Farm announced that it will give refunds to customers who have paid emergency rates if the department agrees to lower the rate increases it requested last year.
The company raised its homeowner rates by 6.9% in January 2023 and by 20% in March of the previous year.
The Department of Insurance said on Monday that it will quickly and openly suggest a plan to help Commissioner Lara protect many consumers in California and keep the home insurance market fair.
The department said that any increase in rates would only be approved if it meets the rules of Proposition 103, a 1988 law that allows the commissioner to examine, change, or deny planned rate increases.
Consumer Watchdog, a group in Los Angeles, argued that State Farm General is not in financial problems. They stated that the company made $1.4 billion in profits from 2020 to 2023 and that its parent company, State Farm Mutual, has $134 billion in assets.
“California homeowners recovering from disaster shouldn’t have to pay to fill State Farm’s bank accounts,” it stated.
In December, AM Best gave a high financial grade to State Farm Group, which is run by the company that owns State Farm General.
In March, State Farm General said it would not renew 72,000 home, apartment, and other property insurance contracts in California. They mentioned high rebuilding costs, more wildfire threats, and old state rules as reasons for this decision.
That followed its move 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, when the extent of the L.A. County fires became clear, State Farm changed its mind and announced it would renew policies for any customer impacted by the Palisades, Eaton, and other county fires, as long as their policies were still active before the fires started on January 7.
The insurance company estimated that about 70%, or 1,100 out of 1,626, of its home insurance plans in Pacific Palisades would not be renewed when they made the announcement last year.
It then extended the renewal deal to all policyholders in Los Angeles County under the same conditions. The company stated that it has around 250,000 homeowners in the county.
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