A state farm logo is seen in front of a state agricultural insurance office on February 03, 2025 in Larkspur, California.
Justin Sullivan | Getty Images News | Getty images
State Farm asserts its arguments this week for an increase in major prices for owners of California in a hearing that could prove crucial for the future of the insurer.
The largest real estate insurer in the state needs approval to increase its tariffs on customers, and it is applied for an increase in emergency rates. The company argues that it needs additional funds to stimulate capital and avoid an increasingly disastrous financial situation following devastating Los Angeles forest fires.
State Farm General, which is the Californian branch of the national parent company, presents its file for the increase in rates before an administrative judge in Oakland after the state insurance commissioner, Ricardo Lara, gave the provisional approval of the insurer for his emergency request.
The three -day hearing is expected to end on Thursday.
The situation of State Farm is precarious. A lawyer for California Department of Insurance compared him to the Titanic, saying that the iceberg is in sight, but there is still time to transform the proverbial ship.
“If we do not do it, 3 million Californians enter the water and there are not enough canoes,” warned this lawyer, Nikki McKennedy.
The historic forest fires that crossed Los Angeles in January caused one to $ 275 billion in damages and broader economic slowdown, according to Accuweather, which makes it the most expensive natural disaster ever recorded.
State Farm General holds around 20% of the owners’ market in California with nearly 3 million policies. The insurer has so far paid more than $ 2.75 billion out of approximately 12,390 complaints filed following Forest Forest Fire and Forest Fire Loses are around 7.6 billion dollars, although reinsurance will reduce its losses to around $ 612 million.
In February, the insurer asked that insurance regulators will approve of owners’ rate increases by 22%. He has since reduced his request to an increase of 17%. State Farm requests an increase of 38% on the housing policies of tenants, which is covered for owners, and 15% increase the tenants.
State Farm General lawyers said on Tuesday that he also agreed to request $ 400 million from his parent company if rate increases are approved.
In February, S&P Global placed the California subsidiary of State Farm and its AA credit rating on a “negative creditwatch”, citing 5 years of weak subscription performance and deterioration of capital scenarios.
Even before the forest fires devastating of the, insurers faced large losses in the state due to the increase in the frequency and size of natural disasters over the past decade. The Insurance Commissioner Lara, who is elected, not named, has been deemed to approve significant rate increases for owners and car insurance.
Meanwhile, carriers pay more in complaints and expenditure in the State than on bonuses, according to the Information Institute. Consequently, many insurers have limited new businesses or reduce their policies in the state.
State Farm decided to stop writing new home insurance policies in California in May 2023. The following year, it announced that it would not renew 72,000 policies, including 30,000 real estate insurance policies for owners and 42,000 commercial apartments, citing financial instability and rising risks.
During the administrative hearing this week, economist David Appel qualified the unisable California market and said he was deteriorating considerably. He said that the state -of -the -use state insurer, the fair plan, to which many owners fled after being abandoned by their insurer, developed astronomical with insufficient capacity.
The State has developed a “sustainable insurance strategy” which creates a framework to allow insurers to use the modeling of disasters and the cost of reinsurance when formulating their prices. It is also intended to rationalize the process by which these rates are approved.
Janet Ruiz of Insurance Information Institute said that the implementation of this plan this year is crucial to correct the systemic problems that had caused an insurance crisis in the first place and constitute an essential step towards the creation of a more stable market in California.
Appeal said he thought that the 17% emergency farm of emergency leads to financial stability for the insurer.
California Department of Insurance supports the demand for increasing state farm rates, but the watchdog of advocacy group is arguing on the increase in rates.
“The company did not argue the case required under the law. Their proposal is not even consistent. First, they wanted 22%. Now, they want 17%,” said William Partcher, main lawyer of Watchdog, in a press release.
“We are happy that the amount is lowered, but it must still be justified, and State Farm does not have it,” he said.