A hillside burns during the Palisades Fire in the Pacific Palisades neighborhood of Los Angeles, California, US, on Tuesday, Jan. 7, 2025. A fast-moving wildfire ripped through an affluent neighborhood in Los Angeles, forcing thousands of people to evacuate as the region braced for a brutal wind storm that could last well into the weekend. Photo: Kyle Grillot/Bloomberg
State Farm will pay $7.6 billion to settle claims related to the LA County wildfires, the insurer said in a letter to California Insurance Commissioner Ricardo Lara.
The letter follows the commissioner’s Feb. 14 rejection of State Farm’s emergency request for a rate hike following the fires, saying the company has not shown why the increase is needed. State Farm said the rate hike would help avert a dire situation for over 2.8 million policies, including one million State Farm homeowners customers and the insurance market in the state of California.
In the letter to Lara, State Farm said the commissioner should approve the interim rate request because it is “in the public interest, in order to maintain maximum availability of homeowners insurance options in California.”
After the wildfires, Lara requested State Farm offer one-year renewals to all LA County residents with policies good through Jan. 7. Meanwhile, California law guarantees homeowners with total loss from the fires must be offered two-year renewals.
According to State Farm, the company has already paid $1.75 billion on roughly 9,500 claims. Meanwhile, reinsurance will lower its overall losses to about $612 million.
State Farm said it insures high concentrations of risk in California that could generate financial losses multiple times larger than the company’s current surplus.
At the same time, State Farm said insurance will cost California customers more in the future because the risk is greater there.
“Over the last nine years, the lack of alignment between price and risk means that for every $1.00 collected in premium, State Farm paid $1.26, resulting in over $5 billion in cumulative underwriting losses," the company said.
State Farm met with Commissioner Lara to discuss the rate increases on Wednesday Feb. 26.
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