State Farm, the largest insurance company in California, has asked state regulators to immediately approve a steep rate hike for homeowners to prevent a “dire situation” for its customers and the broader insurance market in the wake of the disastrous Los Angeles wildfires.
On Monday, the company sent a letter requesting the California Department of Insurance approve emergency rate increases averaging 22% for homeowners statewide. It also asked for a 15% increase for renters and condo owners and a 33% hike for rental owners.
The insurer, which had previously issued warnings about its financial stability, said the increases are necessary to ensure it can continue to pay out claims after covering more than $1 billion in losses following the blazes in Southern California.
“Insurance will cost more for customers in California going forward because the risk is greater in California,” the company said in a statement.
It was unclear how much premiums could increase in the Bay Area or which parts of the region would experience the largest rate hikes. Statewide, the insurer covers roughly 15% of homes, more than 1 million homeowner customers.
In a statement, the insurance department said it planned to review State Farm’s request “thoroughly to ensure Californians are charged the appropriate justified rates,” adding it will “respond with urgency and transparency” with proposals to protect the state’s insurance market.
Citing growing wildfire risks due to climate change and rising rebuilding costs, among other factors, State Farm has stopped writing new policies anywhere in California since May 2023. Other providers, including Allstate and Farmers Insurance, have also paused or scaled back offering new coverage.
Over the past decade, insurers have also dropped hundreds of thousands of property owners in fire-risk parts of the state, forcing many onto the FAIR Plan, California’s expensive insurer of last resort. The cancellations came even as companies raised premiums statewide.
State Farm last March said it wouldn’t renew 30,000 homeowners policies, though it paused that process in Los Angeles County following last month’s fires, allowing those with policies on the books on January 7th the option to renew. The company, with more than 2.8 million home and other California property insurance policies, last fall projected dropping 1 million home and other property insurance policies in the state over the next five years.
State Farm’s plea to regulators follows a 30% rate hike request in June. At the time, the company asked the insurance department to grant a “variance” to raise premiums higher than usual due to the company’s uncertain financial outlook.
Illinois-based State Farm reported net losses of more than $6 billion in both 2022 and 2023. The losses came amid a “significant increase in homeowners incurred catastrophe claims,” according to the company’s financial results in February. State Farm is the largest casualty insurer in the country, according to the National Association of Insurance Commissioners.
With that request still pending, the company is now asking regulators to approve a smaller “interim” hike as soon as possible to help cover losses in the Los Angeles fires. In its letter, State Farm said its participation in the FAIR Plan, which is under growing financial pressure due to the fires, is putting “tremendous strain on the company’s already-diminished surplus.”
Under the FAIR Plan, a state-mandated, privately run high-risk pool, losses that exceed its resources must be covered the state’s insurance carriers in proportion to their market share.
The company added that without the increase, its California subsidiary, State Farm General, risks having its credit rating downgraded, meaning “customers with a mortgage might not be able to use State Farm General insurance on the collateral backing for their mortgage.”
Consumer advocates, meanwhile, are skeptical that State Farm is in as bad of financial shape as it claims. They’ve raised concerns that State Farm General’s parent company is covering too few losses through its reinsurance policy and instead seeking to pass those costs onto its customers.
“It seems like they’re are trying to take advantage of this tragedy by pushing a bailout onto homeowners,” said Carmen Balber, chief executive of Consumer Watchdog.
In an attempt to stabilize California’s faltering home insurance market, state regulators recently finalized a plan that includes allowing insurers to raise rates based on the growing threat of climate change — long an industry demand — in exchange for expanding coverage in parts of the state with the greatest wildfire risk.
In the greater Bay Area, insurers who opt into the plan will be required to write more policies in Marin, Napa, and Santa Cruz counties, as well as parts of San Mateo and Sonoma counties and a sliver of Santa Clara County. Insurers would also have to offer new policies for fire-risk homes in more urban areas such as the Oakland Hills and Los Gatos.