Major Insurer Gives Harsh Ultimatum to Entire State of California

By: Stephanie Bontorin | Published: Jul 03, 2024

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.

An aerial view of the coast of California with several large houses on the cliff with kayakers in the water below

Source: Kevin Carter/Getty Images

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.”

A man wears a dark grey suit jacket, a blue button up shirt, and a small microphone on his lapel while speaking at a podium

Source: @KSRO/X

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.

A photograph of a California flag and a US flag next to a palm tree against a blue sky

Source: Freepik

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.

A large red State Farm logo on the outside of a building

Source: @Likeshesays/X

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.

The exterior of a large office building with a red State Farm sign on the front lawn

Source: @NewsNew97351204

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.

A view of a wealthy California neighborhood on a sunny day

Source: Freepik

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.

A large fire on the side of a mountain with many houses in the way

Source: Michael Held/Unsplash

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.

A man wearing a blue suit with a white shirt poses in front of columns in a large building

Source: @rainbowaisle/X

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.

A small white plane drops a large plume of red dust over the smoke of a wildfire

Source: Ben Kuo/Unsplash

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.

Satellite image capturing a large wildfire in a rural area, showing active flames and extensive smoke spreading across the landscape

Source: Wikimedia Commons

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.

A large sign for a McDonald’s restaurant against a blue sky

Source: iStock

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.