State Farm General requested a 22% emergency rate hike in California on Monday, Feb. 3 to cover losses from the Los Angeles County wildfires and stop its “financial deterioration,” the company wrote in a letter filed with the state’s insurance commission.
The property insurer, the state’s largest and a subsidiary State Farm Mutual Automobile Insurance Co., said it has received more than 8,700 claims from the Jan. 7 fires in Pacific Palisades and Altadena areas. The company said it has paid more than $1 billion paid to customers.
The company is seeing signs of rapid deterioration of its capital structure, according to the letter sent to Insurance Commissioner Ricardo Lara by Dan Krause, State Farm’s president and chief executive officer.
Krause wants Lara to take “emergency action” to help protect California’s fragile insurance market by immediately approving interim rate increases on its filings, with rates to become effective May 1. Besides the average 22% rate increase in homeowners’ insurance policies, State Farm requested a 15% hike for renters, 15% for condo owners and 38% for rental dwellings.
“We know we will ultimately pay out more, as those fires will collectively be the costliest in the history of the company,” wrote Krause. The rate increases are needed to help avert a dire situation for more than 2.8 million policies issued by State Farm, including 1 million homeowners, the letter states.
Wildfire costs will further downgrade the company’s debt ratings from Wall Street credit agencies, which are expected if the rate increases aren’t approved, the letter further states.
Insurance Department spokeswoman Gabriel Sanchez said Monday that State Farm’s latest rate filing raises “serious questions” about the insurer’s financial condition.
“State Farm General continues to collect insurance premiums paid by Californians and pay out claims to its existing customers,” Sanchez said in a statement. “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.”
State Farm’s request will not be an easy one to decide, Sanchez said.
With 9.1% of the California’s property market share in 2023, State Farm wrote more than $8.7 billion worth of premiums, according to the California Department of Insurance.
In May 2023, State Farm stopped writing new business, homeowners, and other property and casualty insurance in the state, with an exception for auto policies.
Nearly a year ago, State Farm noted the “swift capital depletion” was “an alarm signaling the grave need for rapid and transformational action,” and “rapid review and approval of currently pending and future rate filings,” according to State Farm’s letter sent Monday to Lara.
In March 2024, the company cited wildfire risks, reconstruction costs and state regulations as to why it would not renew over 72,000 home, apartment, condo and other property policies.
Last June, State Farm requested a 30% rate hike for its homeowners policies, a 36% increase for condo owners and a 52% increase for renters. It is still being reviewed.
Sanchez said that her department plans to respond with “urgency and transparency” to recommend a course of action in order to protect “the integrity” of the state’s residential property insurance market.
Last year’s three rate filings were made under a little known “variance” in rate making formulas that insurance companies can use when they believe their solvency is threatened, Sanchez said.
She said that Lara has the authority to order a rate hearing if an agreement with State Farm can’t be reached. The commission staff plans to make an “urgent formal recommendation” to Lara, she said.