In recent events in Los Angeles, a fatal fire has had a significant impact on the local insurance industry. The largest home insurance company in California, State Farm General, submitted an application to the California Department of Insurance on Monday, February 3, seeking approval for an emergency temporary rate increase, averaging a 22% raise in premium rates for California homeowners.
The wildfires in Los Angeles County have put immense pressure on insurance companies, with State Farm General stating in a letter to the California Insurance Commissioner Ricardo Lara that as of February 1, they have received at least 8,700 claims and have already paid out over $1 billion to customers. It is expected that more payments will be made in the future, making this fire the most expensive settlement in the company’s nearly 100-year history.
The rate increase application is aimed at helping the company address the financial challenges brought on by the fire and to rebuild its capital base.
The company has stated that the temporary rate hike is necessary to prevent any adverse effects on more than 2.8 million policies held by State Farm General, including 1 million homeowners, as well as the overall insurance market in California.
The California Department of Insurance (CDI) issued a statement indicating an “emergency” review of the request, highlighting that this is one of several recent rate increase proposals by insurance companies that have raised serious concerns about the financial health of State Farm General.
According to various media reports, State Farm General has also applied for a 38% rate increase for rental property policies and a 15% increase for renter’s insurance policies. If approved, all changes will come into effect on May 1.
The request for this rate adjustment comes in the aftermath of catastrophic and deadly wildfires in the Los Angeles area, which destroyed tens of thousands of acres of land in Southern California.
As reported by the Los Angeles Times, State Farm General had previously applied for a rate increase as early as June 2024, requesting rate hikes of 30% to 52% for different types of insurance, such as a 30% increase for homeowners’ insurance, a 36% increase for landlord insurance, and a 52% increase for renter’s insurance, but had not yet received approval.
The insurance company also announced in May 2023 that it would stop insuring new homeowners in California due to reasons including inflation, an increased frequency of natural disasters, and challenges in the reinsurance market.