On February 3, State Farm, California's largest private insurer, appealed to the state's insurance regulator to approve a temporary rate increase to help offset significant payouts due to recent devastating wildfires in Los Angeles.
The proposed rate adjustments include a maximum increase of 22% for non-tenant homeowners, 15% for renters and condominium owners, and up to 38% for rental dwellings. Non-tenant homeowners are property investors who do not reside in their owned premises.
A State Farm spokesperson confirmed to Reuters via email that the insurance regulator will review these rate hike requests.
State Farm currently provides insurance coverage for 250,000 homes and 880,000 vehicles in Los Angeles County, and over a million homes and four million vehicles statewide, exposing the company to billions of dollars in risk.
In light of the escalating wildfire risks in California, many insurers have left the state, prompting homeowners to resort to a more expensive state-run insurance program. The recent fires in Los Angeles claimed 28 lives, and caused damage to or destruction of over 16,000 structures.
In its communication with the regulator, State Farm emphasized the urgent need for an emergency interim rate approval to prevent a critical situation for their policyholders and the insurance market in California.
The company revealed that as of February 1, it had received over 8,700 claims and disbursed more than $1 billion in payouts.
State Farm projected a substantial financial burden, estimating a $1.26 payout for every $1.00 collected in premiums over a nine-year period until 2024, resulting in cumulative underwriting losses exceeding $5 billion. After-tax net losses totaled $2.8 billion over the same timeframe.
A regulator's spokesperson assured that a thorough review of the rate adjustments would be conducted to ensure fair rates for Californians, indicating concern over State Farm's financial standing as highlighted in their submissions.