Major insurer gives brutal ultimatum to entire state: Let us put up prices by 50 percent or we will leave
California's largest insurer has given the state's government an ultimatum as the cost of providing cover continues to soar.
State Farm on Thursday told California's Department of Insurance to let them raise home insurance rates for millions of citizens, or they will ax cover.
The move by the insurance giant comes amid a growing insurance crisis in California.
A slew of insurers - including Allstate, Farmers Direct and State Farm in a previous move - have limited cover or stopped doing business entirely in the Golden State.
They blame the intensifying risk of climate disasters.
As a result, more than half of all Californians say they have been affected by rising property or have been dropped by their insurer in the last year. With so few firms offering cover, they cannot simply move to a new provider.
State Farm General has aired an ultimatum to the entire state of California, saying it is seeking a 30 percent rate hike for homeowners, a 36 percent increase for condo owners, and a 52 percent increase for renters. If those demands are not met, the firm may move out of the state
The move indicates financial trouble for the insurance giant, which currently covers homes razed by wildfires. Pictured, a row of homes in Long Beach, California
State Farm disclosed it wants to raise prices by 30 percent for homeowners, 36 percent for condo owners, and 52 percent for renters.
'This has the potential to affect millions of California consumers and the integrity of our residential property insurance market,' insurance commissioner Ricardo Lara said - as the filings make their way through the proper channels.
He added how he was now keen to 'get to the bottom' of the company’s financial situation - and will conduct an extensive review before deciding on the applications as a result.
'State Farm General’s latest rate filings raise serious questions about its financial condition,' he said of the number one insurance firm in the US.
He added how a rate hearing may even necessary, offering his commission an opportunity to hear from the public about the proposed rate changes.
Only then, he said, would officials make a decision on whether to approve the requests - a process that could end up taking months.
As it stands, the department is averaging 180 days per rate review, with some cases taking even longer, a department spokesperson confirmed to the LA Times.
This is largely due to the outsized amount of fires Californians have seen in recent year, with this year's wildfire season now underway.
The California Department of Insurance had already approved two State Farm requests that saw citizens home insurance rise drastically, including a 6.9 percent hike at the start of last year and a 20 percent rise that began this past March.
Mere months later, the company is going to the state hat-in-hand again, after being pegged to have an approximate $143.2 billion net worth as recently as 2021.
At the time, the firm was generating some $87.6 billion in yearly revenue, and this past February, it issued a statement saying its net income for the previous year was an impressive $1.2 billion.
That was up more than 100 percent from the year before, when the Illinois based insurance provider raked in $588 million in income.
Still, such a move usually signals an insurance carrier is struggling - something that remains unseen as of writing.
The California Department of Insurance had already approved two State Farm requests that saw citizens home insurance rise drastically, including a 6.9 percent hike at the start of last year and a 20 percent rise that began this past March
Mere months later, the company is going to the state hat-in-hand again, blaming wildfires on its inability to foot the bill that comes with covering the entire state
The move indicates financial trouble for the insurance giant, which currently covers homes razed by wildfires. Homes leveled by the Camp Fire line a development on Edgewood Lane in Paradise, California, are seen here in 2018
However, State Farm said in one of its filings that the purpose of its request was to restore its financial condition - offering the telling statement, 'If the variance is denied, further deterioration of surplus is anticipated.'
The insurer went on to add that it was 'working toward its long-term sustainability in California', indicating a potential problem spot amongst the places it covers.
Back in March, State Farm said it had decided to drop 72,000 customers in the Golden State because of a crisis it said was occurring in all of California's insurance market. Only a week earlier, it raised home insurance rates for California customers by 20 percent.
In 2023 Farmers Direct Insurance announced it was leaving the state entirely, while Allstate said in November 2022 it was no longer writing new policies in California. It said in April this year it was considering a return if the state rolls out new rules to help it mitigate risks.
In April, Tokio Marine America Insurance Company and Trans Pacific Insurance Company said they would stop offering homeowners coverage and umbrella policies.
Both companies, owned by Japanese firm Tokio Marine Holdings, together insured 12,556 homeowners in the state, worth $11.3 million in premiums.
In March, California's insurance commissioner Lara introduced new policies to address the 'catastrophic modeling' the industry appeared to be in desperate need of due to the outsized wildfire risk and climate change seen in the state.
The move allowed insurers like State Farm to use a more forward-looking modeling around its pricing policies instead of basing them solely on past trends - and while it was at first welcomed by the industry, companies stopped short of committing to returning to the state.
State Farm, however, is the first to pushback on the concept of automatic coverage in the state, which was subjected to 7,127 fires in 2023.
That was slightly down from the year before when 7,667 fires ravaged California - a relative 'quiet' year according to officials in terms of acreage.
In 2021, a total of 8,835 fires were recorded - one of the most-ever on record.
Then facing 'unprecedented fire conditions' in the words of officials, the state saw multiple fires such as the Dixie Fire, McFarland Fire, Caldor Fire, and more.
In October, some respite was offered especially to especially susceptible Northern regions, when the state received its first rain in over 200 days.
That finally reduced the wildfire risk for much of the state, where wildfires occur at a rate well above average when compared with the rest of the country.
'This has the potential to affect millions of California consumers and the integrity of our residential property insurance market,' insurance commissioner Ricardo Lara said in a statement - as the filings make their way through the proper channels
He promised to conduct an extensive review before deciding on the applications as a result, as California's wildfire season is already underway
'Rate changes are driven by increased costs and risk and are necessary for State Farm General to deliver on the promises the company makes every day to its customers,' the company said in a statement last week following its requests.
'We continue to look for ways to maintain competitive rates,' the company added, days after this years wildfire season officially went into effect.
The company previously chalked its earlier hikes to a combination of wildfires and inflation - contributors it said has raised its reconstruction costs along with the prices they pay for reinsurance bought to boost their balance sheets.
Such plans are purchased to protect the firm from the astronomical costs created by climate catastrophes as well as outdated state regulations.
State Farm cited these risk-makers when announcing the more than 70,000 non-renewals earlier this year, joining Farmers, Allstate and other firms in either not writing or limiting new policies in the famously volatile state.
Consumer advocates have disputed the claims - paving the way for a painstaking probe over the next few months from the state's insurance department.
