Latest news with #StateFarmGeneral
San Francisco Chronicle
6 days ago
- Business
- San Francisco Chronicle
State Farm downgraded in California by major financial rating agency
A major credit rating agency has downgraded its rating for State Farm's California arm for the second time in just under three months, citing the insurer's 'significant exposure to natural catastrophe risk.' In May, S&P Global Ratings had lowered State Farm General's financial strength rating from an AA to an A+ rating and warned of a potential future downgrade. This week, it took the company's rating down further, to an A-. State Farm General is the largest home insurance company in California, covering about 15% of all homes in the state. It's also been very public about its rapidly deteriorating financial condition: In 2023, State Farm stopped writing new home insurance policies altogether, and in 2024 it began dropping nearly 30,000 homeowners. Ratings from third-party agencies bear great significance for insurance companies because they can determine whether their clients are able to get a mortgage. Fannie Mae and Freddie Mac, which provide federally-backed mortgages, maintain minimum rating standards for insurance companies. If an insurer drops below that standard, their customers may no longer be able to get a mortgage from the same lender. Private lenders also often hold certain standards for insurance companies. Home insurance tool: See how the biggest California home insurers are rated — and what it could mean for your mortgage Even with the back-to-back downgrades, State Farm General still meets Fannie and Freddie's requirements to have a BBB rating or better from S&P. It does have a B rating from another credit rating agency, A.M. Best — making it one of that agency's two lowest-rated insurers in California. However, while the B rating falls below Freddie Mac's standard of a B+, companies only need to meet one rating requirement to remain acceptable for mortgage lenders. State Farm General is the California-only subsidiary of State Farm Mutual Automobile Insurance Co., an Illinois company that itself maintains an AA rating from S&P and a A++ rating from A.M. Best. 'The outcome was anticipated, and our approach is unchanged,' the company said in a statement. 'We remain deeply concerned about the financial position of State Farm General, as it is difficult to match price to risk in California. To ensure the long-term sustainability of State Farm General, we are being diligent in our efforts to turn around the financial stability of the company.' State Farm General's financial state was already weak headed into the beginning of this year, and was then made worse by the Los Angeles wildfires, S&P noted. The insurer has estimated it will pay $7.6 billion in claims from the Eaton and Palisades fires, though all but $400 million of that will be covered by its national parent company, State Farm Mutual, which provides reinsurance — insurance for insurance companies — to its subsidiary. State Farm Mutual has also agreed to give State Farm General a $400 million loan to help buoy its finances — a positive factor that was taken into account during the rating assessment, according to S&P. Their rating assumes that State Farm General will secure ultimate approval for the interim 17% home insurance rate increase that the insurer began implementing this June. The California Department of Insurance is expected to hold a hearing in October that will determine the final premium rates for State Farm, which could range from a 30% average increase to no increase at all. The latter could lead to refunds for customers whose rates have already risen. If approved at the full amount, it would be the largest rate hike from State Farm General in at least eight years. Last year, the insurer began implementing an overall 20% rate hike on home insurance customers. Survivors of the Los Angeles fires have continually opposed this rate increase, urging Insurance Commissioner Ricardo Lara to delay a final decision until after his department completes an ongoing investigation into allegations that State Farm has failed to properly communicate and make payments to survivors. Earlier this month, the Eaton Fire Survivors Network sent Lara a letter saying it would be 'regulatory failure' to allow the rate hike to go through before the investigation is finalized. State Farm has said it anticipates the investigation will reveal thousands of satisfied customers. If the rate hikes do not get approved, and if State Farm General's financial position continues to deteriorate, that could lead S&P to lower the insurer's rating even further. Analysts noted the insurer could also face another downgrade if its parent company wavers in its financial support. But for now, S&P said its outlook for State Farm General is stable, reflecting its expectation that the insurer's 'capital position will remain satisfactory, that its operating performance will improve, and that it will maintain its position as the largest homeowners' insurance carrier in California.'
San Francisco Chronicle
21-07-2025
- Business
- San Francisco Chronicle
California wants regular insurers to grow. But it's the FAIR Plan that's growing faster than ever
A decade ago, the California FAIR Plan was a true insurer of last resort. It insured less than two in every 100 homes in the state. Today, it is one of the largest insurers in California. New data from the FAIR Plan shows the insurers' presence is growing faster than ever before, adding nearly 90,000 new policies in the first half of 2025 alone — a sign that California's insurance crisis remains in full swing, despite tentative signs of progress. Homeowners on the FAIR Plan describe it as unaffordable and inadequate. A base FAIR Plan policy only covers damage from fire, lightning and explosions, requiring policyholders to pay for a separate, second policy to cover burst pipes, liability and anything else. It also caps overall coverage at $3 million per residential policy — enough for most homes, but not at the high end. But for more than 591,000 homeowners, condo owners and renters, there is in essence no other choice. 'The more we grow, it's just indicative of a less stable market. It shows that the market is in an unhealthy state right now, because more and more people are coming to the FAIR Plan,' FAIR Plan President Victoria Roach testified to the Assembly Insurance Committee in May. For Matt Wiser, affording insurance now means deferring repairs on his car and cutting back on the number of trips he makes to the bookstore or to have dinner with his girlfriend. Wiser was forced on to the FAIR Plan last year when his previous insurer, State Farm General, informed him they wouldn't renew his policy unless he'd complete a laundry list of wildfire mitigation measures — including tearing down the shed that's been on the property since Wiser's great-grandfather owned it. The amount of work was overwhelming and unaffordable, and so Wiser set out to find new insurance. He learned from local brokers that no private insurer would write new policies in his ZIP code — a swath of Fresno County that stretches from the relatively flat and grassy part of Auberry, where Wiser lives, deep into Sierra National Forest. Wiser does what he can to reduce his wildfire risk. He regularly mows, weedwhacks and brings in horses and mules to graze grasses that might otherwise fuel a fire. He passes annual inspections from Cal Fire and has a letter from his local fire department testifying to his efforts. Still, because of the overall high risk in his ZIP code, Wiser said no insurance company will send someone out to recognize the work he does. 'It is incredibly maddening, incredibly frustrating. The people who are making those decisions are city folks in air-conditioned offices, and by and large, they've never even been to the areas where they're making these decisions,' he said. 'We are judged by the ZIP code and not individual circumstances.' Now, Wiser is on the FAIR Plan, alongside 277 others in his ZIP code. Since 2019, the FAIR Plan's policy count in his ZIP code has more than doubled, now making up an estimated 47% of all insured residences. If Wiser had done all of the work and kept his State Farm policy, his premium still would have risen by about 60%, he said. But now he's paying about $5,200 a year, 85% higher than he used to, for the FAIR Plan plus a wraparound policy. Data disclosed by the FAIR Plan earlier this month shows that its policyholders pay anywhere from $91 to more than $20,000 per year, but it's not the price that weighs the heaviest on Berkeley hills resident Sharon Drager — it's the coverage limits. Three decades ago, Drager's home burned down in the 1991 Oakland Hills fire, a wind-whipped blaze that destroyed more than 3,000 homes and set a record at the time for the deadliest urban wildfire in California. But through insurance, Drager was eventually able to recover and rebuild. Both the home that burned and the one she rebuilt were insured by State Farm — at least up until last fall, when she was one of nearly 30,000 customers to be told their insurance would not be renewed due to risk of wildfires and fires following earthquakes. (A State Farm spokesperson said the decision to nonrenew thousands of customers was 'not made lightly' and was a necessary step to stabilize the company's financial condition.) Drager searched for a replacement, but no private insurer was willing to give a quote for the full value of her home. So she turned to the non-admitted, or surplus line, market — insurance companies that are not subject to California's pricing regulations. Even when she chose a high deductible, none of the quotes were remotely affordable. 'The numbers were astronomical. One quote was $40,000 a year,' Drager said. 'I had to give up. There was nothing available to me that I could afford.' So Drager wound up on the FAIR Plan, though she fears she is still underinsured. Over the past few years, as insurers cut back on writing new policies and not renewing existing customers, the FAIR Plan has grown faster and faster. Still, its recent growth doesn't mean the insurance crisis is still getting worse — it just means it hasn't yet begun to get better, said David Russell, a professor of insurance at CSU Northridge. While some of the FAIR Plan's growth comes from homeowners like Drager and Wiser who were dropped by their insurers, much of it likely reflects people moving, or purchasing a home for the first time, only to find the FAIR Plan is their only option. Many home insurers have restricted where they'll write new policies, and others — including State Farm and Allstate — have stopped taking on new customers at all. Once homeowners get on the FAIR Plan, it's hard to get off — Roach, the insurer's president, told legislators that in 2023, the average FAIR Plan customer had been with the FAIR Plan for about five-and-a-half years. New regulations, finalized at the end of last year and slated to take full effect soon, aim to get more private insurers to take up customers like Drager and Wiser. These reforms alter the way insurance companies are allowed to set their prices, which align California more closely with the rules in other states, but are also expected to lead to increased prices for many homeowners. In order to use these new regulations, private insurers will have to commit to writing more policies in designated 'distressed' areas — counties and ZIP codes where wildfire risk and the share of FAIR Plan policies is high. Those who already write a significant number of high-risk policies will be required to maintain their presence there. Deputy Insurance Commissioner Michael Soller said the department expects insurance companies to submit their first filings under the new reforms this summer. Part of that will include explicitly telling regulators how many more policies they'll be writing and by when. Throughout the process, Soller said regulators will be keeping a close eye on whether companies are truly writing more policies and where they're writing them. Insurance Commissioner Ricardo Lara has said a key measure of success will be seeing people move off from the FAIR Plan. Some insurers have already begun writing more policies in anticipation, Soller added. Drager is eager for the day a traditional insurer will take her again — but it hasn't come yet. Having rebuilt her home after a wildfire once, she's well aware of how coverage limits that seem high can be quickly eaten up by the costs of debris removal, replacing personal belongings and rebuilding a house from the foundation up — especially in an area like the Berkeley Hills, where construction is expensive. When she first made the switch to the FAIR Plan, the overwhelming anxiety of being underinsured kept her awake at night. Now she has resigned to it. 'I can't fight it,' she said. 'There was nothing personally I could do. My whole neighborhood is affected by this.'
Yahoo
18-07-2025
- Business
- Yahoo
Climate catastrophes are creating a ‘new market reality' for insurance carriers
Raging wildfires and severe storms contributed to record-high global insurance losses — totaling an estimated $84 billion — for the first six months of the year, according to a report from reinsurance broker Gallagher Re. It has been the costliest first six months of a year since 2011, when insurance losses totaled $136 billion, the report said. Weather- and climate-related events amounted to at least $81 billion in the first half of 2025, the costliest on record for such events from January to June in a given year. Insurance losses are expected to surpass $100 billion for the entire year, Gallagher Re estimated. The report called this 'a new market reality.' US wildfires in January accounted for about $40 billion of the $84 billion total. The January wildfires that raged across Southern California were among the costliest and most destructive in Los Angeles County's history. It forced tens of thousands of Californians to decide whether they would rebuild their homes or relocate from a state increasingly facing the risk of wildfires. In February, State Farm General, which is California's largest insurance provider, said it received more than 8,700 claims and paid over $1 billion to customers in the wake of the wildfires. Citing a 'dire' financial situation, the company requested an emergency interim rate hike averaging 22% for homeowners from state officials, putting more pressure on California homeowners. Severe storms that created damaging tornadoes, winds and hail in the United States accounted for at least $33 billion in losses, according to estimates from Gallagher Re. The strongest storms hit the Midwest and South in mid-March, creating large tornadoes that raked through towns and hauled debris into the air. Gallagher Re estimated that the outbreak of storms between March 13 and March 16 totaled nearly $8 billion in insured losses. That's the fourth costliest storm outbreak for insurers on record, Gallagher Re reported. The rest of the world, meanwhile, experienced below-average insurance losses. Non-US insured losses were less than $10 billion, marking the second time since 2006 that the first half of a year fell short of $10 billion. The costliest non-US event of this year was April's earthquake in Myanmar and Thailand, where losses could top $1 billion once all of the claims are processed. CNN's Samantha Delouya contributed to this report. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Los Angeles Times
16-06-2025
- Business
- Los Angeles Times
L.A. County fire victims sue State Farm for negligence, claim they were ‘grossly underinsured'
Six couples and one individual who lost their homes in the devastating Los Angeles fires are suing State Farm, claiming that they were 'misled' by the insurance company and that their homes were deliberately and 'grossly underinsured.' The lawsuit, filed in Superior Court in Los Angeles on Monday, alleges that State Farm General — the California home insurer that is part of the larger State Farm Group based in Bloomington, Ill. — took advantage of homeowner's lack of knowledge about rebuilding costs and set projected replacement costs far lower than the actual costs, leaving fire victims without enough money to replace or rebuild their homes. State Farm, California's largest home insurer, has engaged in a 'multi-faceted illegal scheme' that is designed to 'reap enormous illicit profits by deceptively misleading over a million homeowners in California,' the complaint alleges. The lawsuit alleges negligence, breach of contract and several other causes of action, and seeks compensatory and punitive damages and reform of State Farm's policies. Representatives for State Farm did not immediately respond to a request for comment. This marks the second time L.A. fire victims have sued insurers because they believe they were systematically underinsured. USAA and two insurers affiliated with AAA were sued in early June by policyholders with similar claims that they did not have enough money to rebuild. Of the seven households who are a part of the lawsuit, four were from Altadena, two were from the Pacific Palisades and one was from Sierra Madre. Each of the homeowners had policies with State Farm, and some were underinsured by more than $2 million when their homes were completely destroyed by the Palisades and Eaton fires. In one instance outlined in the lawsuit, homeowners wrote to their State Farm agent prior to the January fires to confirm whether the dwelling limit of just over $1 million would sufficiently cover the cost of rebuilding their Altadena home. The agent confirmed the amount covered the total cost to rebuild. After their home burned down, the estimates the couple received to rebuild were in excess of $3 million, the lawsuit says. The lawsuit comes days after State Insurance Commissioner Ricardo Lara announced his department is launching a formal inquiry into how State Farm General is handling thousands of claims filed by fire victims after receiving complaints. As of June 12, State Farm said it has received more than 12,800 claims related to the fires and has paid over $4.03 billion to its California customers. State Farm has also been named as a defendant in an April lawsuit filed by homeowners who accuse dozens of insurers of colluding over the last several years to force them into the California FAIR Plan, the insurer of last resort that offers limited, but typically expensive, coverage. The homeowners claim the insurers refused to write new policies in fire-prone areas and then profited from the higher premiums while reducing their liabilities with the FAIR Plan in the event of a catastrophe like the January fires. The latest lawsuit against State Farm claims that the insurer's alleged collusion with other carriers to push homeowners onto the FAIR Plan meant the only policies left for the company were ones that 'carried deliberately suppressed coverage limits of sufficiently low magnitude,' posing a lesser exposure risk for State Farm. The average homeowner, the complaint states, would have little reason to question the replacement costs estimated by State Farm because it writes over a million California homeowners insurance policies each year by generating reconstruction cost estimates. The policyholders in the suit, as well as several other impacted homeowners, the lawsuit said, are unable to rebuild their homes without 'relief from the legal system.' Times staff writer Laurence Darmiento contributed to this report.
San Francisco Chronicle
16-06-2025
- Business
- San Francisco Chronicle
State Farm accused of ‘illegal scheme' that left California wildfire survivors underinsured
State Farm General, the largest insurer in California, stands accused of orchestrating a 'multi-faceted illegal scheme' to underinsure California homeowners in an effort to grow its market share, according to a lawsuit brought by Los Angeles wildfire survivors. In a complaint filed Monday with the Los Angeles Superior Court, attorneys alleged State Farm's California subsidiary and one of its agents 'deliberately' misused reconstruction cost estimation programs to undervalue how much its policyholders' homes would cost to rebuild after a disaster. That allowed them to offer cheaper policies while deceptively marketing those policies as providing '100% replacement cost' coverage. The tactics formed part of a 'race to the bottom' pricing strategy, through which State Farm captured more than 20% of the California insurance market, according to the complaint. 'Lower coverage limits correspond to more attractive premium rates, but leave homeowners unwittingly exposed to serious underinsurance when faced with a total loss following a natural disaster,' attorneys for the wildfire survivors wrote. 'This has severely undermined Plaintiffs' efforts to rebuild their lives in the aftermath of this tragic event.' This lawsuit and others follow a Chronicle investigation published in April that found that companies representing at least 40% of California's home insurance market all rely on one software program, called 360Value, to recommend policy limits to their customers. Insurers have failed to disclose 360Value's specific flaws to policyholders. Reporters found that the tool relies on faulty data and methods to determine its reconstruction cost estimates, often incorrectly guessing a home's features or drawing from outdated records. Agents for major insurers, including State Farm, rarely take the time to examine and correct the pre-populated data. Additionally, the information 360Value uses to price building materials and labor does not adequately account for California's higher costs. Taken together, these shortcomings have driven widespread underinsurance among California policyholders, the Chronicle investigation found, leaving them with coverage limits that can be hundreds of thousands of dollars too low. In the State Farm lawsuit, attorneys allege that the company deliberately misused the software to save time and operating costs. Over the past decade, the insurer required agents to input and validate fewer home characteristics by hand, instead relying increasingly on the 'assumed data' and skewing reconstruction estimates downward. What's more, State Farm may have attempted to use the incorrect data its agents prefilled into the tool against its own policyholders, soon after their homes burned down. According to the complaint, when some policyholders questioned the adequacy of their policies following the fires, State Farm 'demanded' their clients answer detailed questionnaires about their homes. Attorneys alleged these questionnaires were designed to help insurers claim that homeowners had provided incorrect information about their homes at the point of sale, giving State Farm an excuse to deny their claims and 'escape liability.' Most of the policyholders named in the lawsuit are underinsured by $1 million or more, according to the complaint. In one case, a couple purchased their home in April 2021 and signed up for a new State Farm policy. Their agent, using cost estimation software, set their coverage limit at $1,005,400. When the couple inquired about the adequacy of that limit, their agent responded in writing that the figure 'does cover the rebill (sic.) of your home.' However, after the couples' home burned down in the Eaton Fire in January, they learned it would cost well over $3 million to rebuild their home — meaning they are likely underinsured by at least $2 million. The State Farm underinsurance lawsuit follows others filed by Los Angeles wildfire survivors against USAA as well as the Interinsurance Exchange of the Automobile Club and CSAA, the two AAA-affiliated home insurers for California. The Chronicle's reporting also spurred a May hearing by the California State Board of Equalization, the state's agency tasked with overseeing property taxes and recommending legislation. The California Department of Insurance previously investigated State Farm for its replacement cost estimation methods following the California wildfires of 2015 and 2017. In a 2022 report summarizing that investigation, the state regulator identified 31 destroyed homes whose policies were set using 360Value replacement cost estimates, finding that half were underinsured by 25% or more. An additional five were underinsured by 40% or more. The department also found instances where State Farm's agents deliberately manipulated the 360Value program to lower the price of policies. In one case, an agent reran 360Value 26 different times, dropping the home's quality grade to 'economy' to generate a lower rebuild cost and thus cheaper coverage. The policyholder ended up being underinsured by $86,000. Representatives for State Farm did not immediately respond to a request for comment. In previous statements to reporters and to the Department of Insurance, however, it has attributed underinsurance to policyholders' failure to adequately assess how much their homes are worth. 'It is the customer's responsibility to select the appropriate limits,' the company wrote to regulators in 2022. In the lawsuit, however, attorneys argue that the average State Farm policyholder could not possibly know more about the cost of rebuilding homes in California than the insurance giant, which collects and analyzes reams of data on construction pricing each year. 'The determination of coverage amount occurs in the context of extreme information asymmetry,' wildfire survivors' attorneys wrote. 'While State Farm writes over a million California homeowners insurance policies each year by generating reconstruction cost estimates, the consumer typically only owns a single home and has no experience or knowledge of how to generate or evaluate the accuracy of a reconstruction cost estimate.'
