State Farm has asked the state of California to approve an emergency 22% homeowner policy rate increase following recent wildfires in that state. A rate increase request filed last year is pending.
Rating agencies downgraded the credit of the California affiliate of State Farm last year, following several natural disasters. The company said without more money, the rating could further deplete State Farm General and put nearly three million remaining California policies at risk.
If additional downgrades follow, the company said customers with a mortgage might not be able to use State Farm General insurance on collateral backing for their loan.
“As of February 1st, State Farm General (Fire only) has received more than 8,700 claims and has already paid more than $1 billion to customers. State Farm General will ultimately pay out significantly more, as collectively these fires will be the costliest disasters in the history of State Farm General,” the company said in a statement.
The Bloomington-based insurer said insurance will cost more in California because the risk is higher there.
State Farm says it hasn't written any new homeowner policies in California for nearly two years. Last March, the company also canceled 30,000 policies in the state. Many of those homes were in the areas subsequently hit by the fires.
The company has tussled with California regulators for decades. California requires state approval for any insurance rate increase above 7%. In the last nine years, State Farm General has spent $1.26 for every $1 collected in premiums, said the company.
State Farm General said its attempts to raise rates and restrict growth to manage risk over the last nine years had limited success because of regulatory considerations.
“This was due in no small part to intervenors in the rate review process, whose efforts to delay and decrease needed rate adjustments prevented State Farm General from maintaining a capital position supportive of its risk profile,” said the company.
Since 2016, State Farm said its capital reserves in California have eroded by 75%.
That signals "the grave need for rapid and transformational action, including the critical need for rapid review and approval of currently pending and future rate filings,” said the company.
State Farm remains the largest insurer in California, as it is in many states.
