State Farm has come under heavy criticism for seeking a 22 percent rate hike, with a 38 percent increase for renters, in the wake of the devastating California wildfires.
“It’s not fair for State Farm to pad its bank account on the backs of homeowners who may have just lost everything,” Los Angeles advocacy group Consumer Watchdog told Newsweek Monday.
Newsweek reached out to State Farm via email for comment on Monday.
Why It Matters
State Farm said the Southern California fires that raged across Los Angeles County, killing dozens and destroying thousands of homes and businesses, have put the insurance giant under financial strain.
In a press release, the insurer said it had received around 8,700 claims and paid out more than $1 billion in claims to customers. It added that is expects to pay “significantly more.”
In a letter Monday to California Department of Insurance Commissioner Ricardo Lara, State Farm asked California insurance regulators to allow it to enact an immediate rate increase in order to avoid a “dire situation.”
The insurance company sought approval for a 22 percent rate hike for the average California homeowner. Condo owners would see a 15 percent rate increase and renters would face a 38 percent hike.
“We are requesting that you take emergency action to help protect California’s fragile insurance market by immediately approving interim rate increases on these filings,” the letter, which was signed by State Farm General executives, said.
What To Know
Consumer Watchdog disputes State Farm’s claims that it needs to raise its rates avoid a “dire situation,” arguing it has not provided the financial data it says justifies the increase.
“Insurance Commissioner Lara must require State Farm to prove it needs this staggering increase,” Carmen Balber, executive director of Consumer Watchdog, told Newsweek.
State Farm previously applied for a 30 percent hike in homeowner rates last June but the request was stalled after the insurance company refused to open its books to justify the increase, as required by California law.
“If State Farm needs money the parent company should step in with its $130 billion surplus, not California homeowners some of whose homes are in ashes,” Balber added.
State Farm was previously granted a $471 million—20 percent—rate hike that took effect in March 2024.
The insurance firm also canceled hundreds of homeowners’ policies last summer in Pacific Palisades, which was later ravaged by the devastating wildfires that swept Southern California in January.
State Farm said it made the move to avoid “financial failure,” citing the growing risk of severe wildfires in the Golden State.
Californians have been furious by the news of the hike and many accused the insurance company of throwing its customers under the bus.
A financial literary professor told Newsweek that the increase will “definitely leave many Californians angry and confused,” especially after last year’s 20 percent hike.
Insurance Commissioner Ricardo Lara has not yet confirmed whether he will approve the hike, but his office said in a statement: “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.”
State Farm General, which covers more than 2.8 million policyholders in California, or 20 percent of all premiums in the state, told Newsweek last month that its “number one priority right now is the safety of our customers, agents and employees impacted by the fires and assisting our customers in the midst of this tragedy.”
What People Are Saying
Balber, the executive director of Consumer Watchdog, told Newsweek: “State Farm is required to prove its claims of poverty and financial disaster; it has refused to do so… Now it’s trying to cash in on a terrible tragedy by detouring the rules that protect state consumers from insurance price gouging – at a time when those safeguards are more important than ever.”
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: “Californians would likely be much more understanding about a rate increase following such a massive tragedy if there hadn’t been a major price hike last year to current insurance rates. No one’s denying rebuilding costs have escalated dramatically in recent years, and with those increases come higher costs to insuring properties in the state. However, past rate hikes were supposed to factor in risks such as wildfires and other natural disasters that are prevalent in different areas in California. A rate increase may be needed after the unprecedented tragedy that’s occurred, but such a sizable one is going to definitely leave many Californians angry and confused.”
Former CNN anchor Dave Briggs said in a post on X, accompanied by an angry GIF: “It’s not just CA & FL, everybody in-between getting screwed over by insurance companies nowhere near climate disasters. @StateFarm just increased my CT policy 45% with no justification.”
State Farm said in a statement on its website: “Insurance will cost more for customers in California going forward because the risk is greater in California. Immediate emergency interim approval of additional rate is essential to more closely align cost and risk and enable State Farm General to rebuild capital. We must appropriately match price to risk. That is foundational to how insurance works. Higher risks should pay more for insurance than lower risks.”
What Happens Next
State Farm General has requested that rate hikes would go into effect on May 1.
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