State Farm has been given the green light to increase home insurance premiums by 22%, as long as the company can prove that it needs to raise rates at a public hearing next month.
California’s largest provider of home insurance will also have to agree to other conditions in order to increase premiums.
Driving the news: State Farm is asking for a 22% rate increase for homeowners, 38% for rental owners and 15% for tenants after the Los Angeles wildfires caused over $7 billion in total damage earlier this year.
- Last month State Farm paid out around $1.75 billion to cover 9,500 claims from the wildfires.
The big picture: California Insurance Commissioner Ricardo Lara gave State Farm permission for the emergency rate hike request if it can convince a judge at a public hearing on April 8.
- Lara also said State Farm needs to ask its parent company for $500 million to stabilize its capital position.
- State Farm would also have to stop any pending nonrenewals of customers.
State of play: State Farm said that it has all of the money to pay the claims from the Los Angeles area wildfires due to its reinsurance agreements.
- However, wildfires and other expenses over the last decade have resulted in State Farm losing $2.8 billion, with its surplus falling by around $5 billion.
- The S&P Global also put the insurer’s AA financial rating on a negative watch last month due to its weak underwriting performance over the last five years and issues from the recent wildfires.
Flashback: Last year State Farm requested a 30% increase in rates for California customers, but the state has not made a decision on that request yet.
- State Farm said it will return any payments that customers make under the emergency rates if last year’s request is ultimately granted.
- The company announced last year that it discontinued coverage for 72,000 homes in California, which followed a decision in 2023 to not issue new policies in California.
What they’re saying: “The role of insurance commissioner involves balancing a stable and sustainable insurance market that serves consumers with effective oversight. To ensure long-term choices for Californians, I had to make an unprecedented decision in the short term,” Lara said in a statement.
- He continued, “State Farm claims it is committed to its California customers and aims to restore financial stability. I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers. The facts will be revealed in an open, transparent hearing.”
