State Farm General said on Monday it is asking 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 1st, State Farm General (Fire only) has received more than 8,700 claims and has already paid more than $1 billion to customers,” a statement from the company reads. “State Farm General will ultimately pay out significantly more, as collectively these fires will be the costliest disasters in the history of State Farm General.”
Preliminary data show insurers have paid out more than $4 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 earlier this month.
Claims figures from insurers released by the California Department of Insurance on Jan. 30 show that 31,210 claims have been filed for home, business, living expenses and other disaster-related needs. According to CDI, $4.2 billion in claims have been paid.
According to the State Farm statement, the costs of the wildfires will further deplete capital from State Farm General.
“Capital is necessary so an insurance company can pay for any future claims for the risks it insures,” the statement reads. “Last year, one rating agency downgraded State Farm General’s financial strength rating due to its capital position. With further capital deterioration as a result of the wildfires, additional downgrades could follow. If that were to happen, customers with a mortgage might not be able to use State Farm General insurance on the collateral backing for their mortgage.”
State Farm asked the CDI to immediately approve interim rate increases “to help avert a dire situation for the more than 2.8 million policies issued by State Farm General, including 1 million State Farm General homeowners customers, and the insurance market in the state of California. State Farm General has had an outstanding filed rate increase pending since June 2024,” according to the statement.
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.
“State Farm General still insures high concentrations of risk in California that could generate financial losses multiple times larger than the company’s surplus,” the statement from the carrier reads. “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.”
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.
In releasing fourth quarter results, Chubb last week said the wildfires are expected to cost the insurer $1.5 billion in the first quarter.
Other carriers have yet to report on insured losses. Following State Farm, the state’s biggest homeowners insurers are Farmers Insurance Group, Liberty Mutual Insurance Companies, CSAA Insurance Group, Mercury Insurance Group, Allstate Insurance Group, Auto Club Enterprises, USAA Group and Travelers Group, according to AM Best’s latest data.
Severe wildfire seasons made insurers wary. CalFire data show that seven of the state’s 10 most destructive wildfires have occurred in the last 10 years. Carriers began pulling back from the state’s homeowners market, blaming wildfire losses as well as regulations. They also began requesting steep rate increases.
In response, California Insurance Commissioner Ricardo Lara introduced his so-called Sustainable Insurance Strategy to increase coverage in wildfire-distressed areas of the state. Lara in December announced a catastrophe modeling and ratemaking regulation that will allow carriers to use the models as a factor in setting and getting rates.
The changes to the regulations were well received by the insurance industry, but they may do little to immediately sooth the impact from the L.A. fires, which are expected to cause property insurance carriers to raise rates, reduce coverage options, or both, in California and other at-risk areas, according to S&P.
Preliminary estimates from Moody’s RMS are for insured property losses to be as much as $30 billion from the fires. Catastrophe modeler KCC said insured loss from privately insured and California FAIR plan policies to residential, commercial and industrial properties, and autos from the Palisades and Eaton Fires will be close to $28 billion.
Estimates issued by Verisk peg insured losses to property from the Palisades and Eaton fires between $28 billion and $35 billion, which includes losses to the California FAIR Plan.
The highest figures issued on insured losses so far include a high of $40 billion put out last week from Keefe Bruyette & Woods analysts. CoreLogic indicated a $35 to $45 billion range of insured losses for two major fires in Los Angeles.
Topics
Catastrophe
Natural Disasters
Wildfire
Louisiana
Pricing Trends
Homeowners
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