After fires, State Farm seeks 22% rate hike for homeowner policies

State Farm, the largest insurance company in California, asked the state Monday for an emergency 22% rate increase for homeowner policies in an attempt to prevent a “dire situation” for customers and the insurance industry in the state.

In the wake of the LA wildfires, the company has so far received more than 8,700 claims and has paid out more than $1 billion, State Farm officials said.

“We know we will ultimately pay out significantly more, as these fires will collectively be the costliest in the history of the company,” President and CEO Dan Krause and other company executives wrote in a letter to California Insurance Commissioner Ricardo Lara. “Although reinsurance will assist us in paying what we owe to customers, the costs of these fires will further deplete capital from (State Farm).”

Krause added that “with nearly three million policies in force, including more than one million homeowners customers, (State Farm) needs your urgent assistance in the form of emergency interim approval of additional rate to help avert a dire situation for our customers and the insurance market in the state of California.”

The company asked Lara to immediately approve interim rate increases effective May 1 — 22% for homeowners, 15% for renters and 38% for rental units.

In May 2023 State Farm announced it would stop writing new policies in California, and the following year it said it would not renew 72,000 policies, 29,000 of which were held by homeowner. The company said recently, however, it would offer renewals to homeowners recovering from wildfire losses.

“The high concentrations of risk covered by (State Farm) in the fire footprint will generate a direct loss many times larger than the company’s pre-event surplus,” Krause wrote. The company’s “already stressed financial position will be further weakened, even after accounting for billions of dollars in anticipated recoveries from a prudently robust reinsurance program that includes State Farm Mutual Automobile Insurance Company as the primary reinsurer.”

California Department of Insurance spokesman Gabriel Sanchez said in a statement that “State Farm General continues to collect insurance premiums paid by Californians and pay out claims to its existing customers. There is no law or regulation that prevents an insurance company from continuing to bill customers for premiums in a wildfire emergency. The Commissioner’s moratorium authority only applies to cancellations and non-renewals.”

Sanchez added that in an effort “to protect millions of California consumers and the integrity of our residential property insurance market, the Department will respond with urgency and transparency to recommend a course of action for Commissioner Lara.  

“The Department will investigate these rate applications thoroughly to ensure Californians are charged the appropriate justified rates as required under Proposition 103,” a 1988 voter-approved law that regulates insurance costs.

In June, State Farm submitted three rate filings seeking extraordinary “relief” from the Insurance Department’s complex rate-making formula based on an obscure, rarely utilized “variance,” which insurance companies use when they believe their solvency is threatened, Sanchez said.  

Following the LA-area wildfires, State Farm has sent another request asking the Department of Insurance to approve an “interim rate” in those rate filings, Sanchez said. California Insurance Commissioner Ricardo Lara will decide on the request and may order a public hearing on the matter.

“Upon receipt of the letter, the Department’s staff is scheduling meetings with all of the parties involved — the Department’s rate review experts, State Farm General and the intervenor — and will make an urgent formal recommendation for action to the Commissioner under the requirements of Proposition 103 and longstanding Department practice,” Sanchez said.  

Updated Feb. 5, 2025, 9:47 a.m.

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