State Farm General is asking California officials for an emergency temporary rate hike because they are in a serious financial situation after the Los Angeles wildfires.
State Farm General announced on Monday that the rate increase could average 22% for homes in California.
“The costs of the wildfires in January 2025 will reduce State Farm General’s funds even more.” State Farm General stated in an open letter to the California Department of Insurance that insurance companies need capital to cover future claims for the risks they protect.
After the wildfires, State Farm General reported that they had gotten over 8,700 claims by February 1 and had paid out more than $1 billion. The company also mentioned that they expect to pay out much more money in the future.
State Farm General also had a blunt message to Californians about the future of insurance in the state.
“The company said insurance will be more expensive for customers in California because the risks are higher there.”
California’s Department of Insurance said that State Farm’s rate reports are causing “serious questions” about the company’s financial status, but so far, no steps have been taken.
“The California Department of Insurance said it will act quickly and openly to suggest what Commissioner Ricardo Lara should do to protect many consumers and ensure the residential property insurance market remains strong.”
Insurance expert Karl Susman said that people in California pay less for insurance compared to those in most other states. He also noted that risks from climate change and wildfires have not been reflected in insurance prices so far.
State Farm is informing the Department of Insurance that it’s time to act. Susman said, “We need to adjust rates to match the real risks in Southern California so we can continue to operate successfully in the state.” “It’s unrealistic to think that the prices we’re paying for protection in this area won’t increase.” The risk is clearly increasing.
In a letter to the state, State Farm said that over the past nine years, their prices have not matched the risks they take. This means that for every $1.00 they make in premiums, they have spent $1.26.
State Farm is asking for a 15% increase for building owners and a 38% increase for renters. If granted, they would start on May 1.
A homeowner in Auburn has received a new request from State Farm after renewing his insurance. Despite a discount for being in a firewise neighborhood, Gary Gilligan’s policy is still very high—”$5,211.50 is due by March 1,” he said.
That’s an 87% increase from last year when Gilligan mentioned, “we paid $3,217.”
Gilligan said, “We were planning a trip to Disneyland for my 60th birthday, but we had to cancel it because we need to pay an extra $2,000, and we don’t have that money right now.”
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