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Yahoo
17-05-2025
- Business
- Yahoo
California approves State Farm's request for double-digit insurance rate hike
The state of California approved State Farm's request for a double-digit increase in home insurance premiums to help the insurer deal with financial challenges following the wildfires that devastated communities near Los Angeles in January. California Insurance Commissioner Ricardo Lara on Tuesday adopted a proposed court order that will allow State Farm to move ahead with a 17% interim homeowners insurance rate increase in the state. That's less than the insurer's initial request of a 21.8% premium hike. Under the terms of the order, which will take effect on June 1, State Farm's California-based subsidiary will receive a $400 million infusion from its parent company to ensure its solvency, and will participate in a full rate hearing at a later date. The insurer is also barred from implementing block non-renewal programs through the end of this year. "I am balancing all the facts. Protecting all State Farm customers and the integrity of our insurance market is an urgent matter," Lara said. Wildfire Victims Not Receiving Help From Fair Plan: 'I'll Have To Fight With Them For The Next Three Years' "Let me be clear: We are in a statewide insurance crisis, affecting millions of Californians. Taking this on requires tough decisions. This is not a game. This is not a media-driven moment for some to exploit — this impacts people I am committed to protecting," he added. Read On The Fox Business App State Farm General (SFG) said in a statement that the commissioner's interim rate approval is a "critical first step" for the company's ability to continue serving customers in California, adding that it "still must continue building sufficient capital for the future." State Farm Executive Fired Over Comments On Premium Hikes After California Wildfires "With this interim rate approval, SFG will obtain from its parent company, State Farm Mutual (SFM), an advance of $400 million under a surplus note to be issued by SFG, subject to regulatory approval. SFG would be obligated to repay the surplus note balance plus interest over time, subject to certain conditions, because customers outside California should not be expected to pay for risks in California," the company said. It added that it's pausing group non-renewals for the rest of 2025 for non-tenant homeowners, renters and condominium unit owners, as well as rental dwelling properties. State Farm Requests Emergency Rate Hike That Could Raise Californians' Premiums By 38% "We remain focused on helping our customers recover from the wildfires. As of May 12, we have already paid more than $3.51 billion and are handling more than 12,692 claims," State Farm added. S&P Global Ratings downgraded State Farm General's credit rating from "AA" to "A+" due to what it called a "significant deterioration of its capital position and regulatory solvency ratios." The rating change doesn't affect other State Farm group article source: California approves State Farm's request for double-digit insurance rate hike
CBS News
05-02-2025
- Business
- CBS News
State Farm emergency rate hike request raising alarm bells for some
The state of California recently implemented changes to its home insurance market when the wildfires in Los Angeles happened. Now, the largest insurer in the state is requesting a rate increase that would affect every one of its customers, and likely drive up the price of coverage for everyone else. It's been less than a month since wildfire decimated entire neighborhoods in Pacific Palisades and other communities in Los Angeles, and now the losses are being tabulated. State Farm General, California's largest insurer, said they have received more than 8,700 claims and already paid out more than a billion dollars from its nearly depleted cash reserves. In a letter to CA Insurance Commissioner Ricardo Lara, the company said, "Although reinsurance will assist us in paying what we owe to customers, the costs of these fires will further deplete capital from are requesting that you take emergency action to help protect California's fragile insurance market by immediately approving interim rate increases on these filings, with rates to be effective May 1, 2025..." Karl Susman, a broker and industry expert, explained the situation. "The problem is the industry in California has pretty much been upside down for about a decade," he said. "And it's been slowly getting eroded because the prices have not been matching the exposure that we've had." Most people are surprised to learn that California has some of the cheapest home insurance in the country despite now ranking second for risk of loss. Homeowners here pay an average of $2,000 a year, while in Oklahoma it's three times that amount. So now, State Farm is requesting an average rate hike of 22 percent for homeowners, 15 percent for renters and condo owners and 38 percent for those owning rental properties, no matter where they are located in the state. The company said it needs the money to refill its capital reserve and said its credit rating has taken such a hit that State Farm insurance may no longer be accepted by some mortgage companies. "And this rate increase is really just the beginning of that," said Susman. "And I wouldn't say that it's backfilling premiums to be able to have the ability to pay claims, but it's really bringing the rate to where it should have been all along, considering the exposures that we have here. And now, we're going to start seeing all the carriers starting to do that. So, we're not in a situation when the next wildfire comes, where companies are running out of money and having to look to see how they're going to pay their claims." But Harvey Rosenfield, who wrote Prop 103, which regulates the state's insurance market, said he doesn't buy the hysteria. He said State Farm already had a request to the state for a 30 percent increase in June, well before the L.A. fires. "Now that the wildfires have happened," said Rosenfield, "State Farm is trying to take advantage of this tragedy to say that they need an immediate, emergency rate increase of 22 percent which could be, like, 3/4 of a billion dollars. We really don't know because they haven't justified that." Rosenfield said State Farm General, the company that insures properties in California, is claiming to be broke while its parent company, State Farm Mutual is worth hundreds of billions of dollars. "But State Farm wants to leverage — with the threat that it's the biggest company in the state and its financial condition is terrible — wants to leverage a bailout," he said. "This is forcing the public to capitalize, to fund, a private corporation that actually has access to resources of its parent company. And it's the parent company that should be bailing out State Farm, not the public." Who should bear the cost of the LA wildfires is up for debate, but there is no question that the risk of fire in California has grown in general. And it seems clear that insurers won't resume writing policies in the state until they are sure they won't be losing money by doing so. If Insurance Commissioner Lara approves the rate increases, which could happen in the next few days, they would go into effect when policies are renewed, as of May 1 of this year.
