More than 1 in 5 homeowners have State Farm insurance in California, and that share has been growing in recent years, said Michael Wara, a climate and energy expert at Stanford University.
“State Farm isn’t very healthy financially because it has been really trying to stay in the California market and even grow in the California market as opposed to doing what most of the other companies have done, which is to shrink,” he told KQED.
“The financial health of State Farm is very significant, particularly to people in the fire footprint who now have claims to file,” Wara added.
Thousands of State Farm employees have assisted victims of the L.A. fires, the company said, processing nearly 8,700 claims and paying out more than $1 billion to customers.
“We know we will ultimately pay out significantly more, as these fires will collectively be the costliest in the history of the company,” the State Farm letter said, noting that its reinsurance — basically insurance for insurance companies — will assist it in paying out claims.
Nevertheless, the costs of these fires will further deplete its capital.
“Last year, one rating agency downgraded SFG and, with further capital deterioration as a result of the fires, additional downgrades could follow,” the letter said. “If that were to happen, customers with a mortgage might not be able to use State Farm General insurance as collateral backing for their mortgage.”
“Given State Farm’s obligations to policyholders who lost homes in the L.A. wildfires [and] their large share of the overall California market — if they provide data to the state Department of Insurance to substantiate their claim to have paid out their entire surplus already — it’s likely there will be some level of a negotiated emergency increase approval,” said Amy Bach, executive director of United Policyholders, a San Francisco-based nonprofit that advocates for insurance consumers.