The worst wildfires in history have prompted California’s largest home insurer to request a significant rate hike, raising concerns over rising costs for homeowners.
As insurance claims from wildfire-affected homeowners surge, California’s largest home insurer, State Farm General, has requested a significant rate hike from the state government.
Citing financial difficulties caused by the high number of wildfire-related claims, State Farm General submitted a request to the California Department of Insurance on February 3 to raise insurance premiums by an average of 22%. The company also proposed a 38% increase for rental properties and a 15% hike for renters’ insurance.
If approved, the new rates will take effect on May 1. As of last year, State Farm held a 20% share of California’s homeowners insurance market.
State Farm General reported that more than 8,700 claims were filed following major wildfires, and more than $1 billion was paid out. The company anticipates even more claims from homeowners and argues that premium increases are necessary to secure the funds required for payouts.
The California FAIR Plan, the state’s last-resort fire insurance provider, has also received 4,400 claims totaling more than $900 million. The insurance industry warns that the FAIR Plan’s cash reserves amount to only a few hundred million dollars, forcing it to rely on reinsurance coverage of approximately $2.6 billion.
According to real estate analytics firm CoreLogic, property losses from the recent wildfires are estimated between $35 billion and $45 billion. Industry experts predict that once wildfire insurance payouts escalate, premiums for all homeowners across California will steeply increase.
Sunny Kwon, president of the Korean American Insurance & Financial Professionals Association (KAIFPA), stated, “A major insurer like State Farm General likely did not request this rate hike solely due to financial losses from this wildfire. They are probably seeking increases to offset cumulative deficits and prepare for additional claims.”
He added, “If the state approves State Farm General’s rate hike, other insurers will follow suit, leading to a domino effect that will ultimately place a heavier financial burden on policyholders.”
Another industry expert warned, “The growing risk posed by wildfires could drive more insurers to exit the California market. If this happens, not only will insurance premiums rise sharply, but the number of uninsured homeowners could also increase.”
Meanwhile, State Farm General has suffered $2.8 billion in losses in California over the past nine years. In March last year, credit rating agency AM Best downgraded the company’s financial strength rating from A to B due to its financial struggles.
However, consumer advocacy group Consumer Watchdog disputes State Farm General’s claims of financial distress. The organization pointed out that the company recorded $1.4 billion in underwriting profits between 2020 and 2023.
Additionally, it noted that State Farm General’s parent company, State Farm Mutual, holds $134 billion in cash reserves, suggesting that the company could maintain financial stability without raising premiums. AM Best has maintained a strong financial rating for State Farm Mutual.
BY KYEONGJUN KIM [kim.kyeongjun1@koreadaily.com]
