Alicia Clanton and Eliyahu Kamisher
2 min read
(Bloomberg) -- State Farm has been approved for an emergency 17% rate increase on homeowner insurance policies in California, part of an effort to shore up the state’s largest insurer after the devastating wildfires in the Los Angeles area.
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The hike, which takes effect in June, also allows a 15% boost for condo coverage, according to Insurance Commissioner Ricardo Lara. It follows a three-day hearing in April, where an administrative law judge found that the adjustment balanced consumer protections with the company’s financial stability. The judge’s proposed order was adopted by Lara on Tuesday.
“Let me be clear: We are in a statewide insurance crisis affecting millions of Californians. Taking this on requires tough decisions,” Lara said in a statement.
As a condition of the increase, regulators ordered the insurer to bring in a $400 million cash infusion from its parent company and barred it from issuing mass non-renewals through the end of the year. State Farm has struggled with wildfire-related pressure and its credit rating was downgraded this week by S&P Global Ratings, which cited the January wildfires and ongoing climate risks.
The Palisades Fire and the Eaton Fire in nearby Altadena in January killed 30 people and destroyed 16,000 structures, causing as much as $131 billion in economic losses.
State Farm had initially sought a 22% hike but agreed to scale back the request during last month’s hearing. A University of California at Los Angeles analysis estimates the company could face $7.6 billion in claims from the Palisades and Eaton fires, which caused $45 billion in insured losses statewide.
Consumer Watchdog, a nonprofit advocacy group, criticized the decision to allow the rate increase, arguing that State Farm didn’t provide enough evidence to justify charging higher premiums under Proposition 103, the state law governing insurance pricing.
“Today’s decision that would make consumers pay now but allow State Farm to wait months before having to show its math is a great disappointment for consumers,” said Consumer Watchdog Executive Director Carmen Balber.
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