January was a devastating month for Los Angeles as it battled two ferocious wildfires, Palisades and Eaton, which burned over 57,000 acres of land and killed roughly 30 people.
The fires burned for three weeks straight before finally being contained on Jan. 31. The cause of the fires is still unknown, however, weather forecasters claim that high winds, severe drought conditions and low humidity made the fires exceptionally destructive.
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As the fires destroyed over 18,000 homes and structures, an insurance crisis erupted in the area. Thousands of Los Angeles residents in fire-prone areas flagged that their home insurance companies dropped them months before the wildfires started, sparking widespread backlash on social media.
Related: State Farm makes major policy change amid LA fires outrage
State Farm, the biggest insurer in California, was one of the many insurers that made this controversial move. In March last year, State Farm said that it would not renew 72,000 policies for houses and apartments in California due to “inflation, catastrophe exposure, reinsurance costs,” and the limitations of working within the state’s insurance regulations.
By July, the company dropped 1,600 policies in the Pacific Palisades and over 2,000 policies in other zip codes in Los Angeles.
State Farm makes a controversial moveÂ
After the fires were contained, State Farm asked the California Department of Insurance to approve “interim rate increases, including 22% average for homeowners” in the state, according to a recent press release.
The insurer is pinning the rate increase on the high costs of insurance claims resulting from the recent Los Angeles wildfires.
Firefighters watch the flames from the Palisades Fire burning a home during a powerful windstorm on January 8, 2025 in the Pacific Palisades neighborhood of Los Angeles, California.Â
“As of February 1st, State Farm General (Fire only) has received more than 8,700 claims and has already paid more than $1 billion to customers,” said State Farm in the press release. “State Farm General will ultimately pay out significantly more, as collectively these fires will be the costliest disasters in the history of State Farm General.”
State Farm claimed that the cost of the recent wildfires in Los Angeles will “further deplete” its capital, which is needed to pay for future insurance claims. A rating agency had already downgraded State Farm’s financial strength rating last year due to its waning capital position.
“With further capital deterioration as a result of the wildfires, additional downgrades could follow,” said State Farm. “If that were to happen, customers with a mortgage might not be able to use State Farm General insurance on the collateral backing for their mortgage.”
Related: Star realtor raises alarm over price gouging amid LA wildfires
The insurer warned that California residents will soon face higher insurance costs due to the recent fires increasing risk in the area. It also said that an “immediate emergency interim approval” of rate increases will help the company rebuild its capital.
“We must appropriately match price to risk,” said State Farm. “That is foundational to how insurance works. Higher risks should pay more for insurance than lower risks.”
State Farm said that over the past nine years, it paid $1.26 for every $1.00 it collected in premiums, resulting in over $5 billion in cumulative underwriting losses.Â
State Farm raised insurance rates last year
State Farm’s latest request for a rate increase follows its approval in January 2024 to increase home insurance rates in California by an average of 20% for renewed policies.
The increase took effect March 15, 2024, with the company blaming the price hike on “increased costs and risk.”
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By February 2024, State Farm also raised auto insurance rates in California by an average of 21%, and in December, it was approved to once again increase those rates by an average of 17.7%. The rate increase in December became effective at the end of January, affecting roughly 4 million customers. Â
After recent rate hikes, State Farm also opted to pause nonrenewals last month for “homeowners, rental dwelling, and residential community association policies” in Los Angeles that were active as of Jan. 7. Its decision followed California Insurance Commissioner Ricardo Lara’s request that all insurers suspend pending insurance nonrenewals in fire-zone areas.
State Farm also recently cut its planned ad for this year’s Super Bowl due to the Los Angeles fires.
“Our focus is firmly on providing support to the people of Los Angeles,” said State Farm in a statement to Front Office Sports. “We will not be advertising during the game as originally planned.”
Related: Veteran fund manager issues dire S&P 500 warning for 2025
