State Farm seeks emergency rate hikes in California after L.A. wildfires

State Farm Insurance has requested the California Department of Insurance (CDI) to immediately approve interim rate hikes ranging from 15% to 38% for rental dwellings, homeowners and tenants, citing expected capital losses following the wildfires in L.A. County.

On Monday, State Farm sent a letter to Commissioner Ricardo Lara of the CDI, urging his assistance “in the form of emergency interim approval of additional rate to help avert a dire situation for our customers and the insurance market in the state of California.”

The insurance company is requesting immediate approval for rate increases of 38% for rental dwellings, 22% for homeowners, and 15% for tenants and condo owners, citing the January wildfires in L.A. County as the primary reason.

“State Farm General Insurance Company (SFG) has received more than 8,700 claims and has already paid over $1 billion to customers. We know we will ultimately pay out significantly more, as these fires will collectively be the costliest in the history of the company,” the letter stated. “Although reinsurance will assist us in paying what we owe to customers, the costs of these fires will further deplete capital from SFG.”

“Last year, one rating agency downgraded SFG and, with further capital deterioration as a result of the fires, additional downgrades could follow,” the letter continued. “If that were to happen, customers with a mortgage might not be able to use State Farm General insurance as collateral backing for their mortgage.”

State Farm is the largest insurance provider in both California and the U.S. According to the company’s website, it insures over a million homes in the state, with a quarter of those policies in Los Angeles County.

According to KABC, which cited Executive Director of Consumer Watchdog Carmen Balber, records indicate that the company has “plenty of cash in the bank,” with State Farm earning $1.4 billion from homeowners insurance between 2020 and 2022, while its parent company holds $135 billion in reserves.

“State Farm has only delayed and refused to respond to requests both from Consumer Watchdog and from the Department of Insurance to prove the rate increase itself was justified,” said Balber. “If anyone should be bailing out State Farm in California, it’s the parent company.”

In May 2023, the company announced it would stop issuing new policies in California. In March last year, it also stated it would not renew 72,000 existing policies, but paused the non renewals following the wildfires in L.A. County.

Los Angeles County is still recovering from the devastating wildfires in early January, which claimed 29 lives and destroyed thousands of homes and structures, devastating the Pacific Palisades and Altadena neighborhoods. The fires, named the Palisades and Eaton Fires, rank among the three most destructive in California’s history.