State Farm asked California on Monday if it could hike home insurance rates in the state by an average of 22% to address what it has claimed was a potentially “dire situation” related to payouts from the devastating Los Angeles-area wildfires
The insurer claimed that it has paid out more than $1 billion to California policyholders affected by the wildfires after receiving nearly 9,000 claims.
With insurance premiums being kept artificially low the past several years, State Farm said it wasn’t able to collect enough premium dollars during that time to keep up with the onslaught on new claims, according to a press release from the company.
“Insurance will cost more for customers in California going forward because the risk is greater in California,” State Farm said in the release.
“Higher risks should pay more for insurance than lower risks. Over the last 9 years, the lack of alignment between price and risk means that for every $1.00 collected in premium, State Farm General has spent $1.26, resulting in over $5 billion in cumulative underwriting losses,” the company added.
Even so, many consumer advocates are wary of State Farm’s rationale for the requested rate hikes.
Doug Heller, the director of insurance for the Consumer Federation of America nonprofit, told USA Today that State Farm “has been quite profitable in California over the last several years.”
“They have built up an incredible fortune in order to deal with crisis. If they feel that they are going to need rate hikes in the future they have a right to go through the process, but to be putting on the emergency siren seems more like trying to bully the state into handing over cash while we’re trying to recover from disaster,” Heller told the outlet.
For State Farm, California became the second largest state by written premium dollars in 2023 and its losses are lower than industry average, Heller said.
State Farm has a history of trying to make questionable moves in California during hard times.
The Los Angeles Times reported in the fall that State Farm had been accused of attempting to elevate the profits of its parent company while also claiming financial distress. At the time, it asked for a 30% rate hike for California policies.
Even last June, State Farm requested extraordinary “relief” three times in California in an effort to be less burdened by the standard rate-setting process in the state.
In the request, State Farm employed a legal process called “variance” that insurance companies often use when they believe their solvency, or ability to repay its debts, is threatened. This also included a 30% premium hike for homeworkers’ insurance, as reported by Insurance Journal.
“State Farm General’s rate filings raise serious questions about its financial condition,” Gabriel Sanchez, press secretary for the California Department of Insurance, told USA TODAY.
“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.”
The state’s Department of Insurance shows that $4.2 billion of claims have been paid relating to the Los Angeles-area wildfires as of Jan. 30.
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