State Farm, California’s largest insurer, wants to implement an “emergency” rate hike of 22% as homeowners pick up the pieces from wildfires that swept through Southern California in recent weeks.
In a letter sent to California Insurance Commissioner Ricardo Lara, State Farm executives ask for a series of interim rate hikes to go into effect in May: 22% for homeowners, 15% for tenants and condo owners, and 38% for rental landlord policies.
The company states that it has received more than 8,700 claims related to the Los Angeles fires and has paid more than $1 billion to customers. But it expects to pay out significantly more in what will collectively be the costliest fire event in the company’s history.
The Eaton and Palisades fires in January killed at least 29 people and destroyed more than 16,000 structures.
State Farm is responsible for more than 2.8 million policies in California, around 18% of the total insurance market.
As the state’s insurance crisis has worsened, the company has taken steps to reduce its risk and improve its financial position by charging higher rates and dropping high-risk policyholders.
State Farm in 2023 announced that it would no longer write new policies in the state, citing its inability to raise premiums in line with market conditions. The company has said it pays out $1.26 in claims for every $1 it collects.
Last year, credit rating agency AM Best downgraded its rating of State Farm’s financial strength.
In March, the company made the decision not to renew 72,000 policyholders across California after “careful analysis of State Farm General’s financial health.” The company said the surplus of capital it had to pay for claims had rapidly declined in recent years.
One of the areas hit hardest by State Farm’s nonrenewals was Pacific Palisades, the tony neighborhood in Los Angeles that was nearly wiped out during the recent blazes. State Farm chose not to renew 70% of the policies in that ZIP Code.
State Farm already has a pending request for a 30% increase for homeowners policies. It is seeking an emergency interim rate hike to bypass the approval process, which includes additional hearings and can add months to the timeline before rate hikes take effect for customers.
The company states in its letter that it will also be responsible for its share of losses from the FAIR Plan, the insurer of last resort for many California homeowners unable to find coverage on the private market. State Farm’s share of FAIR Plan losses is estimated at 16%.