State Farm seeks steep home insurance hikes in California

State Farm seeks to hike California homeowners insurance by a third or more to avoid going broke.

State Farm General, a California unit of the Illinois-based insurance giant, asked the state Department of Insurance to allow the firm to raise homeowners insurance rates by an average of 30 percent for homeowners, 36 percent for condominium owners and 52 percent for renters, the San Francisco Chronicle reported.

If approved, the rate jump would be State Farm’s largest in seven years, according to company filings. The rates are slated to rise next year as homeowners seek to renew their policies.

State Farm employed a rarely used “variance request” to allow the firm to boost its prices more than normally permitted “in order to protect the insurer’s solvency.”

The company’s requests “raise serious questions about its financial condition,” state Insurance Commissioner Ricardo Lara said in a statement. “This has the potential to affect millions of California consumers and the integrity of our residential property insurance market.” 

State Farm didn’t immediately respond to a request for comment.

State Farm General insures approximately one in five homes in California and last raised its rates across the state an average of 20 percent in March. It also announced it wouldn’t renew 30,000 homeowner policies and 42,000 commercial landlord policies to reduce its exposure to risk. 

For the past year, State Farm also put the brakes on new homeowner policies. The company is bleeding cash within the Golden State — paying more for claims than it’s taking in.

Last year, State Farm had a loss ratio of 89.61 percent in California — paying $89.61 in claims for every $100 it took in in premiums. That compares with a loss ratio of 68.25 percent for the overall market in California, according to the Department of Insurance.

It was the company’s worst year in California since 2017, when colossal wildfires ignited tens of billions of dollars worth of insurance claims for a loss ratio of 122.4 percent.

State Farm hinted at potential insolvency in March, when its executives fired off a letter to the Department of Insurance reporting the firm’s “capital position has been severely deteriorated, and we are increasingly concerned about its financial well-being.”

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At the same time, AM Best, a credit-rating agency for insurance companies, marked down State Farm’s financial strength rating from excellent to fair — issuing a “negative” outlook for its long-term issuer credit rating.

State Farm faces increased losses due to water damage and liability claims, on top of billions spent in 2017 and 2018 because of the catastrophic wildfires, it said in its letter to the state insurance department.

State Farm and other insurance firms backed up by California Insurance Guarantee Association, which would handle claims if any of them were to become insolvent.

— Dana Bartholomew