State Farm seeks an emergency insurance rate increase after LA wildfires

SAN FRANCISCO -- If your home is covered by State Farm, you could face a 22% rate hike. The company sent a letter to the California Dept. of Insurance warning of its 'dire' financial situation in the wake of the Los Angeles County wildfires -- requesting what it calls an 'emergency' rate hike.

In the letter sent Monday, State Farm also requests an emergency 15% rate hike for condo owners and a 38% rate hike for rental dwellings in California.

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State Farm is the country's largest insurer and covers 20% of the wildfire-affected areas in Los Angeles County. The company says it has received more than 8,700 claims and has already paid $1 billion to Southern California customers.

"State Farm is having trouble remaining profitable in California and a big reason is the claims... The cost of doing business as an insurance company in California, especially for property insurance, has gone up," said Kevin Brasler, executive editor of Consumers' Checkbook.

"When there are claims, it's more expensive to repair the homes or have to rebuild a home from scratch... construction costs have gone way up," said Brasler.

But critics say State Farm refuses to provide proof it needs the hike.

"This request is really outrageous for an emergency increase... If the company has numbers to show it deserves an increase, it can go through the regular process. To this point, State Farm has only delayed and refused to respond to requests both from Consumer Watchdog and from the Department of Insurance to prove the rate increase itself was justified," said Carmen Balber, Executive Director of Consumer Watchdog.

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Balber argues records show the company has plenty of cash in the bank, reporting State Farm made $1.4 billion in homeowners insurance from 2020 to 2022. Balber also added State Farm's parent company has $135 billion in the bank.

"If anyone should be bailing out State Farm in California, it's the parent company," said Balber.

Consumer Watchdog says State Farm has upstreamed billions to its parent company.

"That means the company is buying insurance from its parent company, but not getting any benefit. That is just stealing money from the pockets of California homeowners," said Balber.

In order to move forward, the rate hike has to be approved by the state's Insurance Commissioner, Ricardo Lara. In response to State Farm's announcement his office wrote, "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."

"It's shameful for State Farm to be trying to take advantage of this tragedy and make money on the backs of California homeowners who are trying to recover," said Balber.

To put this in perspective, State Farm was already granted a 20% rate increase in March last year. The company requested another 30% hike last July, but it was never approved -- so this 22% hike would amend that one, if approved.