A state farm logo will be seen in front of a State Farm Insurance Office on February 3, 2025 in Larkspur, California.
Justin Sullivan | Getty Images News | Getty pictures
This week, State Farm is lodged in a hearing for an essential interest rate increase for the California homeowners in California, which could prove to be decisive for the future of the insurer.
The state's largest real estate insurer needs approval to increase its prices for customers, and it is used to increase the emergency rate. The company argues that it needs the additional funds to increase capital and to avert an increasingly bad financial situation after the devastating forest fires in Los Angeles.
State Farm General, the Californian arm of the national parent company, presents his case for the rate increase in front of an administrative judge in Oakland after the state insurance commissioner Ricardo Lara has given the insurer the provisional approval for his emergency application.
The three -day hearing is scheduled to complete on Thursday.
The situation for State Farm is precarious. A lawyer of the California Ministry of Insurance compared it to the Titanic and said the iceberg was in sight, but it is still time to turn the proverbial ship over.
“If we don't, 3 million Californians go into the water and there is not enough lifeboats,” warned this lawyer Nikki McKennedy.
According to Accuweather, the historical forest fires, which were carried out in Los Angeles in January, caused an estimated slowdown of 250 to 275 billion US dollars in total and broader economic slowdown, which made it the most expensive natural disaster of natural sites.
State Farm General has about 20% of the California home owner market with almost 3 million guidelines. So far, the insurer has delivered over 2.75 billion US dollars for approximately $ 12,390 for the forest fires of LA and estimated direct losses with the fires at around 7.6 billion US dollars, although reinsurance will reduce its losses to around 612 million US dollars.
In February, the insurer asked the insurance supervisory authorities to approve interest rate increases for homeowners of 22%. Since then it has reduced its request to an increase of 17%. The State Farm requests an increase of 38% for tenant apartment policies, cover for landlords and 15% for tenants.
The lawyers of State Farm General said on Tuesday that she also agreed to look for over 400 million US dollars from his parent company if the tariff applications were approved.
In February, S&P Global placed the Californian subsidiary of State Farm and the AA credit rating for a “creditwatch negative”, with 5 years of weak drawing performance and deteriorating cash capital scenarios.
Even in front of the devastating forest fires, the insurer confronted due to the increase in frequency and size of natural disasters in the past decade with great losses from the state. The insurance commissioner Lara, who has not been appointed, has relieved it to approve significant interest rate increases for both homeowners and car insurance.
In the meantime, according to the Insurance Information Institute, the airlines pay more claims and expenses in the state than in premiums. As a result, many insurers only have limited new businesses or have restricted their guidelines in the state.
State Farm decided to stop insurance policies in California in California in May 2023. The following year, she announced that it would not extend 72,000 guidelines, including 30,000 real estate insurance policies for homeowners and 42,000 commercial apartment guidelines, citing financial instability and the risk of an increase.
During the administrative hearing this week, the economist David Appel did not describe the California Market sustainably and said that he had deteriorated dramatically. He said that the insurer of the last resolution of the state, the fair plan, to which many homeowners have fled after they have dropped by their insurer, has grown astronomically with inadequate capacity.
The state has created a “sustainable insurance strategy” that enables a framework for the use of disaster modeling and the costs of reinsurance in the formulation of their tariffs. It is also intended to rationalize the process through which these tariffs are approved.
Janet Ruiz from the Insurance Information Institute said that the implementation of this plan this year is crucial for the correction of the systemic problems that have caused an insurance crisis at all and are a major step towards creating a more stable market in California.
Appel said that he believes that the 17% emergency healing of the state farm will lead to financial stability for the insurer.
The California Ministry of Insurance supports the increase in installment of the State Farm, but the consumer guard of the Advocacy Group is committed to the rate increase.
“The company does not even have the case requested according to the law. At first they wanted 22%. Now they want 17%,” said William Plletcher, main attorney of Consumer Watchdog, in a press release.
“We are happy that the amount has dropped, but it still has to be justified and did not state farm,” he said.
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