(Bloomberg) --State Farm, the largest home insurer in California, is asking for an emergency rate hike from state regulators as it warns that multibillion-dollar payouts from the Los Angeles wildfires threaten its balance sheet and the broader insurance market.
The company is seeking a 22% average hike in rates for homeowners and 15% for renters and condominium owners, according to a
An aerial view of homes that burned in the Eaton Fire in Altadena. "The importance of our ask for your immediate help to protect all Californians cannot be overstated," State Farm said in the letter. Authorizing higher rates would send a crucial message to to "solvency regulators, rating agencies" and company leadership that the insurer "has a chance to begin rebuilding capital to sustain itself."
The insurer said its wildfire payouts have already topped $1 billion and are expected to rise further, putting "very significant pressure" on its financial strength and ability to pay claims. Last month's blazes killed at least 29 people and destroyed 11,000 homes in places including Pacific Palisades, a wealthy Los Angeles enclave, and Altadena, a middle-class area.
Total damages are expected to amount to tens of billions of dollars in one of the costliest disasters in US history. Insurance companies paid out $4.2 billion in claims related to the Eaton and Palisades fires as of Jan. 30, according to a
California's insurance regulator said it would review State Farm's request while disputing some assertions in the company's letter.
"The department will investigate these rate applications thoroughly to ensure Californians are charged the appropriate justified rates as required under Proposition 103," Gabriel Sanchez, a spokesperson said, referring to a consumer-protection law. "State Farm General's rate filings raise serious questions about its financial condition."
Insurance 'Outrage'
State Farm's letter drew criticism from Consumer Watchdog, a California insurance-advocacy organization, which argued that the company hasn't provided the data to back up its dire predictions.
"It's an outrage for State Farm to take advantage of this tragedy and fill its bank accounts on the backs of recovering California homeowners," Executive Director Carmen Balber said in an email. "There's also no process under the law for an 'emergency' rate increase. The company will have to show its math to get an increase."
California's insurance market has been in crisis for years as companies have pulled out or curtailed coverage due to what they describe as a combination of increasingly damaging wildfires, surging rebuilding costs and regulatory burdens.
The insurance commissioner has approved a new plan that takes effect this year allowing insurers to request higher rates with faster regulatory approval in exchange for expanding coverage in wildfire-prone areas.
The state authorized a 6.9% hike for State Farm in 2023 and a 20% increase last year. The company also has a pending request for a 30% rate hike, although Balber said it wasn't immediately clear if the company intends to pursue that increase as well as the 22% emergency boost.
