State Farm Insurance, the largest insurance company in California, is asking regulators for the OK to raise property insurance rates by 22 percent just weeks after fires ripped through Los Angeles leaving thousands homeless.
The insurance group has already paid over $1 billion dollars to customers since the beginning of the month, State Farm said.
“We know we will ultimately pay out significantly more, as these fires will collectively be the costliest in the history of the company. Although reinsurance will assist us in paying what we owe to customers, the costs of these fires will further deplete capital from State Farm General,” it said.
Previous losses, State Farm noted, had already weakened its finances. One credit rating agency downgraded State Farm last year. Without additional depletion and downgrades, customers with a mortgage “might not be able to use State Farm General insurance as collateral backing for their mortgage.”
“With nearly three million policies in force, including more than one million homeowners customers, SFG needs your urgent assistance in the form of emergency interim approval of additional rate to help avert a dire situation for our customers and the insurance market in the state of California,” the company wrote to California Department of Insurance Commissioner Ricardo Lara.
Insurers have fled the Golden State following particularly devastating wildfires that now occur year-round throughout California. Last year, State Farm announced that it would not renew more than 70,000 policies in the state, including many in the Palisades Zip code. The Pacific Palisades neighborhood of Los Angeles was hit hard by the Palisades fire last month.
“This decision was not made lightly and only after careful analysis of State Farm General’s financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations,” it said then.
These new interim rate increases for State Farm would help to avert a “dire” situation for the policies issued in California, State Farm asserted. This comes following an outstanding filed rate increase pending since last June. If approved, rates would change on May 1.
“Insurance will cost more for customers in California going forward because the risk is greater in California,” State Farm said, adding that they “must appropriately match price to risk.”
A request for comment from State Farm was not immediately returned.
Its request comes after utility Southern California Edison also announced hikes in the wake of January’s fires.
Insurance group migration is tied to climate impacts, although that is not something State Farm specifically cited. A report released Monday found that there is a “feedback loop” between unprecedented levels of property damage from climate change-related events like these wildfires to consequences for policyholders.
By 2055, the climate risk financial modeling company First Street estimates that unrestricted risk-based insurance pricing would drive a 29.4 percent increase in average payments to keep a policy active.
Wildfires like these are expected to intensify and become more frequent due to climate change.
January’s Eaton and Palisades fires were some of the state’s most destructive in history, tearing across 57,000 acres and leading to the deaths of at least 29 people. The fires have since been put out after weeks of life-threatening Santa Ana winds.
The winds are expected to pick up again following recent storms.
