California — LA Wildfire Damages, State Farm & Rate Hikes

A report issued by the University of California at Los Angeles (UCLA) says economic losses from the devastating wildfires in and around Los Angeles will hit somewhere between $95 billion and $164 billion. Economists Zhiyun Li and William Yu noted the damages will drop the area’s 2025 domestic product by $4.6 billion — or about 0.5%.

“In terms of economic magnitude, it’s very big,” Li said. “It takes time for the local economy to recover from it, and whether it recovers remains to be seen.”

When all is said and done, Li and Yu think the wildfires will rank second to Hurricane Katrina as the biggest disaster to ever hit the U.S. And as those in insurance already know, the report notes not all losses from this devastation will be insured.

In the meantime, State Farm has written a letter to the California Department of Insurance asking for a rate increase for the homeowners it covers. And State Farm wants those increases to happen immediately that it says will “help avert a dire situation.”

If approved the rate hikes will average 22%.

Breaking it down, non-tenant homeowners would see a 22% jump, renters and condo owners will be given an average increase of 15% and rental dwellings could see increases of 38%.

The letter from State Farm wants the increases to go into effect on May 1st. On a news release issued on its website, State Farm said it will need the increased cash flow to pay future claims.

“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,” the news release said. "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.”

This request comes after State Farm received permission to raise rates 20% in January of 2024 and after it requested another 30% average hike for homeowners insurance last summer.

“Insurance will cost more for customers in California going forward because the risk is greater in California,” State Farm’s website statement said. “We must appropriately match price to risk. That is foundational to how insurance works.”

California Department of Insurance spokesman, Gabriel Sanchez said the department is reviewing the new application, however, he said it sparks worries over the stability of the company.

“State Farm General’s rate filings raise serious questions about its financial condition, Sanchez said. “To protect millions of California consumers and the integrity of our residential property insurance market, the department will respond with urgency and transparency.”

Consumer Watchdog disagrees with the department’s assessment of the company’s financial strength. Executive Director Carmen Balber said S&P Global has State Farm rated with an AA rating. It’s the second highest possible rating and Balber points out the company also has $194 billion in surplus and in its reserves.

She wants insurance commissioner, Ricardo Lara and his department to deny the request.

“Consumers who are struggling to rebuild their lives after the wildfires should not be forced to pay higher premiums to prop up State Farm’s bank accounts,” Balber said. “State Farm has failed to demonstrate that an emergency rate increase is necessary.”

Consumer Watchdog also disagrees with the company’s assessment of its finances and what it has going out the door because of the Los Angeles wildfires and other events in California.

Balber said there is no evidence at all that the wildfire claims State Farm will see will come close to approaching $7 billion. Her analysis has State Farm with $4.4 billion in its reserves and surpluses. She also wonders why the company can’t access parent company, State Farm Mutual Automotive Insurance’s $194 billion in surplus and reserves like it did in Texas.

Consumer Watchdog also adds there is a $9 billion reinsurance pledge from the parent company when insurance claims reach $250 million.

As a side note, State Farm insures somewhere around 250,000 homes and over 880,000 automobiles in LA County, and over 1 million homes and 4 million autos around the state.

Source link: PropertyCasualty360.com — https://bit.ly/4hxm5BI

Source link: Fox Business — https://bit.ly/3WYPNHr

Source link: Insurance Business America — https://bit.ly/3CNNArC

Source link: PropertyCasualty360.com — https://bit.ly/3CCRWSm