State Farm Seeks Emergency Rate Increase Averaging 22% after L.A. Fires
Insurer Seeks Rate Hike to Rebuild Capital Base
State Farm General, California’s largest home insurer, has asked state officials for an emergency rate hike averaging 22% due to the Los Angeles County fires. The insurer, a subsidiary of State Farm Mutual Automobile Insurance Co. of Bloomington, Ill., claims that the fires have put the company in dire financial straits.
Costliest Natural Disasters in History
State Farm General has already received at least 8,700 claims and paid more than $1 billion to customers. The company expects to pay out “significantly more,” making the fires the costliest natural disasters in its history.
Request for Rate Hike
The insurer is asking for rate hikes of 22% for homeowners, 38% for rental dwellings, and 15% for tenants. The rates are expected to take effect May 1.
Necessary to Rebuild Capital Base
State Farm General claims that the rate hike is necessary to rebuild the company’s capital base, which was severely impacted by the fires. The company also noted that insurance industry ratings agencies have said they expected premium increases due to the fires.
California Insurance Commissioner Response
The California Insurance Commissioner, Ricardo Lara, will review the request and make a decision on whether to approve the rate hike. The department has stated that any rate hike would be approved only if it is justified under Proposition 103, the 1988 ballot measure that gave the commissioner the authority to review, adjust, and reject proposed rate hikes.
Controversy Surrounds Rate Hike
The proposed rate hike is likely to be controversial. In June, State Farm General filed for a 30% rate increase for its homeowners policies, a 36% increase for condo owners, and a 52% increase for renters. That request took state officials by surprise, with Commissioner Lara saying it raised “serious questions about its financial condition.”
State Farm General’s Financial Status
State Farm General has lost $2.8 billion over the nine-year period ending last year, including gains from investment income. The company’s financial rating was downgraded last year by AM Best.
Accessing Reinsurance
State Farm General will access reinsurance it acquired from its parent to pay claims from the Los Angeles-area fires.
Consumer Advocacy Group Response
Consumer advocacy group Consumer Watchdog disputed that State Farm General was in financial trouble, citing the company’s underwriting profits and parent company’s financial resources.
Conclusion
State Farm General’s request for an emergency rate hike averaging 22% will likely be met with controversy and scrutiny from regulators and consumers. The company claims that the rate hike is necessary to rebuild its capital base and continue providing insurance coverage to its customers.
FAQs
What is the reason for the rate hike?
The rate hike is necessary to rebuild State Farm General’s capital base, which was severely impacted by the Los Angeles County fires.
How much will the rate hike be?
The rate hike will average 22% for homeowners, 38% for rental dwellings, and 15% for tenants.
When will the rate hike take effect?
The rate hike is expected to take effect May 1.
Will State Farm General continue to operate in California?
State Farm General has committed to continuing to operate in California, but only if the company’s financial situation improves.
