By Pat Maio, ORANGE COUNTY REGISTER
State Farm General said it will pay $7.6 billion to settle claims from last month’s firestorms in the Los Angeles area.
The insurance provider met with state insurance regulators Wednesday, Feb. 26, to push for a rate increase in homeowners insurance premiums.
In a letter sent in advance of the meeting to Insurance Commissioner Ricardo Lara, State Farm President and CEO Dan Krause wrote that reinsurance a type of insurance on insurance in catastrophic events would cover a majority of the losses. Reinsurance, State Farm said, would lower its losses to about $612 million.
This includes $212 million in retained losses after reinsurance, and State Farm’s special assessment of $400 million that it must pay into the California Fair Plan, an insurer of last resort.
State Farm General requested a 22% emergency rate hike in California on Monday, Feb. 3 to cover losses from the Los Angeles County wildfires and stop its “financial deterioration.” Lara shot down the request, and asked that Krause and other company officials meet with him Wednesday.
A Consumer Watchdog representative also attended the meeting with Lara and State Farm executives, urging the insurance commissioner to reject the emergency rate increase.
William Pletcher, litigation director at consumer advocacy group, called the rate increase an unjustified attempt to shift the burden of financial mismanagement onto California policyholders.
“State Farm is demanding a backroom bailout from California homeowners while concealing critical financial details,” Pletcher wrote in a Wednesday, Feb. 26 statement published on the group’s website.
“State Farm’s financial troubles stem from its own mismanagement and its decision to overextend its risk portfolio, not from any legitimate emergency justifying an immediate rate hike,” said Pletcher, who estimated that the 22% emergency rate increase could average $600 per homeowner policy.
If approved, the rate increase would take effect May 1, 2025.
In speaking with reporters after the meeting, Lara said that he would carefully consider State Farm’s request and hoped to make a final decision within two weeks.
The Bloomington, Ill.-based property insurer, the largest in California and a subsidiary of State Farm Mutual Automobile Insurance Co., said it has received more than 9,500 claims from the Jan. 7-8 fires in Pacific Palisades and Altadena areas. The company said it has paid more than $1.75 billion to customers.
“Today, we took the opportunity to reiterate with commissioner Lara the urgency needed to approve State Farm General’s interim rate request so that State Farm General can continue helping California customers,” said a State Farm spokesman in a Feb. 26 statement following the meeting.
Also, this week, S&P Global placed State Farm General’s AA financial rating on a negative watch, citing the company’s “weakening capital position” as a result of the California wildfires.
