State Farm said it needs to quickly raise rates on California residents with homeowners insurance policies to help cover the company paying out millions of dollars in damage claims from the Los Angeles County fires.
The insurer sent a letter late Monday to the California Department of Insurance, asking the agency to approve an "emergency interim rate increase." The letter noted that, if approved, rates would increase 22 percent for homeowners, 15 percent for renters and 15 percent for condominium unit owners. The increases would take effect May 1.
State Farm, the state's largest insurer, said it's asking for an increase because approving payouts to Californians who lost their property during the fires has nearly emptied the company coffers. The Palisades and Eaton fires have scorched almost 40,000 acres of land in the Golden State, causing $29.7 billion worth of damage to single-family homes. The United States should expect to lose nearly $1.5 trillion in real estate value over the next 30 years due to climate change-related extreme weather events, according to research from the real estate technology firm First Street Foundation.
"As of February 1st, State Farm General Insurance Company has received more than 8,700 claims and has already paid over $1 billion to customers," CEO Dan Krause wrote in a letter to California Insurance Commissioner Ricardo Lara. "We know we will ultimately pay out significantly more, as these fires will collectively be the costliest in the history of the company. Although reinsurance will assist us in paying what we owe to customers, the costs of these fires will further deplete capital from SFG."
State Farm declined to provide specifics on when the proposed increase might be reduced.
Billions in claims
All insurance companies doing business in California, including State Farm, have so far paid out $4.2 billion to residents in claims, according to a state tally.
State Farm said it expects a wave of claims from homeowners and car owners that will further weaken the company's financial position.
Commissioner Lara has not decided on State Farm's request yet, a state official said. After receiving Krause's letter, department officials met with State Farm representatives and now staffers "will investigate these rate applications thoroughly to ensure Californians are charged the appropriate justified rates."
"State Farm General’s rate filings raise serious questions about its financial condition," Gabriel Sanchez, a spokesman for the California Department of Insurance, said in an emailed statement. "To protect millions of California consumers and the integrity of our residential property insurance market, the department will respond with urgency and transparency to recommend a course of action for Commissioner Lara."
Sanchez noted that State Farm continues to collect premiums from existing customers, adding that there is no law that "prevents an insurance company from continuing to bill customers for premiums in a wildfire emergency."
Fewer policies
To be sure, California's insurance market had already been at an inflection point long before the fires. State Farm was one of a handful of companies — along with Allstate — that decided to pull back on business in California, opting in May 2023 not to write new policies. The company also decided last May not to renew 72,000 existing policies, of which 29,000 were homeowners insurance.
State Farm and other insurers will continue looking to increase rates in the coming years, First Street said in its recent report. Homeowners should expect their insurance policies to increase by an average of 29.4 percent by 2055, with homeowners in California, Florida and Texas taking the highest of increases, the firm said.
"Insurance will cost more for customers in California going forward because the risk is greater in California," State Farm said in a statement. "Higher risks should pay more for insurance than lower risks."