State Farm “Provisionally” Can Do 22% Insurance Rate Hike

Introduction to the Rate Hike

State Farm General got its wish to hike home insurance rates by an average of 22 percent. The news comes weeks after being straight-armed by California’s chief insurance regulator for a request to increase rates because of the Los Angeles wildfires.

Background on the Request

California Insurance Commissioner Ricardo Lara “provisionally” granted the unit of Illinois-based State Farm Mutual Automobile Insurance the emergency rate increase requested after billions in wildfire claims. But the increase — which includes a 38 percent rate increase for rental buildings and 15 percent for renters and condo owners — won’t take effect until a hearing slated for April 8.

Decision and Conditions

Lara approved the increase on March 14 after turning down the request last month, saying the insurer had failed to prove it was warranted. He’d given the insurer an opportunity, however, to provide more evidence to justify the request. In making his decision, Lara called on State Farm to halt any pending nonrenewals of customers statewide and for the insurer’s parent company to provide its California insurer an infusion of $500 million to stabilize its capital position.

Statement from the Commissioner

“The role of insurance commissioner involves balancing a stable and sustainable insurance market that serves consumers with effective oversight,” Lara said in a statement. “To ensure long-term choices for Californians, I had to make an unprecedented decision in the short term.” “The facts will be revealed in an open, transparent hearing,” he added.

State Farm’s Situation

State Farm has faced years of losses and huge damage claims after the Jan. 7 fires that raged Pacific Palisades to Altadena, and leveled more than 12,000 homes. As of March 11, State Farm General and its parent have received more than 12,000 fire and auto claims related to the wildfires, and paid more than $2.2 billion to customers.

Financial Impact

State Farm General has estimated it will pay out $7.9 billion in the wake of the Palisades, Eaton and other L.A. County fires. But, its net losses from the fires will be closer to $600 million after reinsurance payments, which largely will come from its parent company. Reinsurance is bought by insurers from other insurers to protect themselves from catastrophic events.

Previous Actions by State Farm

Last March, the company announced it would not renew 72,000 home, apartment and other property policies in California, citing wildfire risks and other concerns. That followed a decision in May 2023 to stop writing insurance for new businesses, homeowners, and other personal property and casualties in the state, with the exception of personal auto policies.

Other Rate Requests

In June, State Farm requested a 30 percent rate increase for its homeowners policies, as well as other rate hikes, which await a decision. The request took state officials by surprise, with Lara saying it raised “serious questions about its financial condition.” State Farm General last month said it’s lost $2.8 billion over the last nine years, including gains from investment income.

Related News

Read more

California insurance commish to State Farm: go pound ashes

State Farm seeks 38% rate hike on rental buildings

State Farm seeks steep home insurance hikes in California

Conclusion

The decision by California Insurance Commissioner Ricardo Lara to provisionally approve a 22% insurance rate hike for State Farm General marks a significant development in the ongoing saga of insurance rate increases in the state. The move is intended to help stabilize the insurer’s capital position after years of losses due to wildfires. However, the increase will not take effect until a hearing in April, allowing for further discussion and scrutiny of the decision.

FAQs

• Q: How much is the average rate hike approved for State Farm General?
  • A: 22%
• Q: When will the rate hike take effect?
  • A: After a hearing slated for April 8
• Q: How much does State Farm estimate it will pay out for the Palisades, Eaton, and other L.A. County fires?
  • A: $7.9 billion
• Q: What condition did Commissioner Lara impose on State Farm along with the rate hike approval?
  • A: To halt any pending nonrenewals of customers statewide and for the insurer’s parent company to provide its California insurer an infusion of $500 million.