Wildfires: A Devastating Reality
State Farm Pays Out $1.75 Billion in Claims
State Farm Insurance Group has paid out $1.75 billion on approximately 9,500 claims filed as a result of the January wildfires in Los Angeles County. Direct losses reported and unreported are estimated to be $7.6 billion.
Increased Insurance Premiums Expected
The company is scheduled to meet with California Department of Insurance commissioner Ricardo Lara to discuss its emergency interim rate request. If approved, State Farm would increase rates in California by 22% for homeowners, 15% for renters, 15% for condominiums, and 38% for rental dwelling coverage. The company attributes the increase to the growing risk of loss, stating that for every $1.00 collected in premium, SFG paid $1.26, resulting in over $5 billion in cumulative underwriting losses over the past decade.
Retained Losses and Reinsurance
Estimates for SFG’s retained losses after reinsurance and its share of California’s total FAIR Plan losses are approximately $212 million and $400 million, respectively. The FAIR Plan is an insurer of last resort backed by licensed state carriers. Retained losses after reinsurance refer to an agreement where an insurance company buys coverage from another company for potential loss.
Interim Rate Request
The interim rate request is not intended to pay for the costs of the wildfires. SFG intends to rely on existing surplus and reinsurance programs to pay claims from the wildfires. State Farm Mutual Automobile Insurance Company (SFM) is the primary reinsurer for SFG.
History of State Farm’s Actions
SFG first asked for the interim rate earlier this month on February 3 to avoid a "dire situation." Lara and SFG met on Wednesday in Oakland for an initial discussion. After the meeting, Lara stated that he is waiting for more information before making a decision.
SFG stopped issuing policies in California in May 2023.
Conclusion
The devastating impact of wildfires on communities is a pressing concern. State Farm’s actions demonstrate the company’s commitment to addressing the growing risk of loss. As the insurance industry continues to adapt to these challenges, it is essential to strike a balance between risk and increased rates to ensure long-term market stability.
Frequently Asked Questions
- What is the estimated total loss from the January wildfires?
- $7.6 billion (direct losses reported and unreported)
- How much has State Farm paid out in claims?
- $1.75 billion
- What is the purpose of the interim rate request?
- To increase rates in California by 22% for homeowners, 15% for renters, 15% for condominiums, and 38% for rental dwelling coverage
- What is the FAIR Plan?
- An insurer of last resort backed by licensed state carriers
- What is retained loss after reinsurance?
- An agreement where an insurance company buys coverage from another company for potential loss
