California Insurance Commissioner Ricardo Lara did not approve an emergency, interim 22% rate request from State Farm, instead calling a meeting with the carrier to get some answers about the carrier’s financial situation and more.
State Farm General earlier this month asked the California Department of Insurance to immediately approve interim rate increases, including 22% average for homeowners.
The carrier, the state’s top homeowners insurer, is partly blaming the devastating Los Angeles wildfires for the request. As of February 14, the carrier reported roughly 11,400 total home and auto claims, paying out more than $1.35 billion.
In a letter Lara issued on Friday, he wrote: “Under the strict review laid out by Proposition 103, the burden is on State Farm to show why this is needed now. State Farm has not met its burden.”
State Farm responded to a request for comment with a statement:
“We are very disappointed the Commissioner ignored his department’s recommendation to take the critical and necessary step to approve State Farm General’s request for interim rate increases associated with our June 2024 filings.”
According to the statement, by not approving the request it “sends a strong message to State Farm General about the support it will receive to collect sufficient premiums in the future” and that the carrier has “gone to great lengths to clearly answer the questions outlined by the Commissioner.”
“While we’re positioned to handle all of the claims associated with the most recent wildfires, State Farm General must seriously consider its options within the California insurance market going forward,” the statement reads.
Up until recently, Lara had been accommodating to insurers, pushing through reforms indented to reverse course from a broad pullback by the state’s top writers over increasing wildfire risks and burdensome regulations.
Lara scheduled an in-person meeting on Feb. 26, inviting State Farm to address questions surrounding issues including:
- State Farm’s financial stability
- Justification for the emergency rate increase
- Consumer impact
- Transparency in decision-making
State Farm’s emergency rate increases would have been effective May 1, and includes 22% for homeowners, 15% for renters, 15% for condominium and 38% for rental dwelling. Despite multiple approved rate changes, State Farm stopped writing new policies in California and non-renewed thousands of existing policies.
State Farm said at the time of its request that the increase is needed to align cost and risk and enable State Farm to rebuild capital. Over the last nine years, the lack of alignment has meant that for every $1 collected in premium, the carrier has spent $1.26, resulting in more $5 billion in cumulative underwriting losses, according to State Farm
In May 2023, State Farm stopped writing any new policies in California. Several other large carriers made similar moves around that time.
“State Farm General still insures high concentrations of risk in California that could generate financial losses multiple times larger than the company’s surplus,” according to statement from the carrier issued following the request. “A smaller capital base will further constrain State Farm General’s ability to provide coverage. Reinsurance will assist us in paying what we owe to customers.”
Beside citing regulatory burdens in California, carriers pulling back from writing in the state have cited the increasing risk of wildfires. CalFire data show that seven of the state’s 10 most destructive wildfires have occurred in the last 10 years.
Insured losses from the Palisades and Eaton fires are likely to rise. At this point losses look to be heading toward early estimates from modelers of up to $40 billion.
Insurance companies have so far paid out more than $6.9 billion for losses from the biggest two of the Los Angeles-area wildfires that swept through the region and destroyed tens of thousands of homes last month.
That’s according to the California Department of Insurance, which on Feb. 13 released the latest data on claims paid for the fires. The figures were updated from data out on Jan. 30, which showed $4.2 billion in claims paid.
Data from insurers released by the CDI show 33,717 claims have been filed for home, business, living expenses and other disaster-related expenses. The data show 5,597 auto insurance claims have been filed for $73 million.
Topics California