A major insurer in California has given the entire state a stark wake-up call. The firm, State Farm General, just asked the Department of Insurance to let them raise residential insurance rates for millions of residents for the third time this year.
The company claims it will pack up its business and move out of state if it can’t extract more funds from Californians amid rising business costs and increasing claims caused by natural disasters.
Financial Trouble Looming for the Insurance Giant
Although the nationwide insurance company makes billions of dollars in profit each year, it appears to be having cash flow issues in California.
After already raising insurance costs for California residents by 20% in January, the company is now seeking a 30% rate hike for homeowners, 36% for condo owners, and almost 52% for renters. The move would immediately worsen the already desperate housing and cost of living crisis.
Thorough Review of State Farm’s Finances Will Take Place
Ricardo Lara, the state Insurance Commissioner, said in a statement about the issue that “this has the potential to affect millions of California consumers and the integrity of our residential property insurance market.”
As the filings progress through the system, Lara thinks the company will need a full review of its financial situation. As the largest insurer in the U.S., the latest filings “raise serious questions about its financial condition.”
A Rate Hearing May Be Necessary
Lara added that a full hearing would most likely be necessary to discover the company’s cash flow difficulties.
The public should have the opportunity to speak their minds about rate hikes and let the company know how these decisions can impact real people. It’s yet another decision making California unaffordable for real people and a place where only the 1% can thrive.
Major Backlogs in the Company’s Processes
Currently, the average department needs 180 days to review each insurance claim.
The large number of fires already occurring and damaging homes in California are to blame for the shock of claims draining State Farm’s finances and resources.
Two Large Rate Increases Occurred This Year Already
In the first half of 2024, the California Department of Insurance already approved two massive requests from State Farm to increase home insurance prices. It began with a 6.9 percent hike at the beginning of the year and another 20 percent rise in March.
In 2021, the company recorded a $143.2 billion net worth. At the time, the insurance firm generated more than $87 billion in yearly revenue. Today, it has surpassed $1.2 billion.
Unclear How the Company Is Struggling
Although the insurance firm claims to be struggling immensely with finances, the figures tell a different story.
Regardless, boosting insurance costs shows that the cost of doing business in California surpasses the necessary income and revenue figures. In a statement, the firm suggested an ultimatum of leaving if demands weren’t met, claiming, “If the variance is denied, further deterioration of surplus is anticipated.”
Thousands of Residents Homes Were Uninsurable Last Year
State Farm claims to be working towards a long-term solution in California. It has also indicated that the company has failed to secure proper coverage for thousands of people in areas with high fire risk.
The firm dropped 72,000 customers in March, citing the crisis in the California insurance market.
Officials Are Seeking Remediation in the Industry
At the time of the rate increase and the dropped customers, Lara claims to be addressing the “catastrophic modelling” of the industry.
Because of the massive issues with increased fire risk in the state, the firm is using a forward-looking model around its pricing policies instead of basing them solely on past trends.
Despite Complains of Fires, Claims Are Down
The total number of fire claims recorded in 2021 was 8,835, a number that has been steadily dropping each year.
Days after the official fire season went into effect, the company issued the following statement: “Rate changes are driven by increased costs and risk and are necessary for State Farm General to deliver on the promises the company makes every day to its customers.”
Wildfires, Inflation, or Greed
The firm blamed the first two rate hikes on a combination of inflation and surges in wildfires. The company purchased Expensive plans to protect their astronomical payouts due to climate catastrophes.
State Farm announced the increased risk this year when they dropped thousands of customers. Other insurance firms, such as Allstate and Farmers, are also limiting new customers or not renewing established policies.
Consumer Advocates Are Suspicious
State Farm is not the only company threatening to leave California over issues like inflation and cost of business. The fast-food giant McDonald’s threatened to pack up business after Governor Gavin Newsom implemented the $20 minimum wage.
However, with both of these massive companies reaping benefits in the billions, it seems that the bottom line of shareholder profits and expensive executive salaries are the real contributing factor.
