CALIFORNIA FOCUS
FOR RELEASE: FRIDAY, MARCH 7, 2025, OR THEREAFTER
BY THOMAS D. ELIAS
“PUSH IS ON FOR OTHER CALIFORNIANS TO SUBSIDIZE MANSION OWNERS”
It took only about three weeks for insurance companies to start their push for all California property owners and renters to subsidize the payouts going to burned-out mansion owners in the wake of the January firestorms in Los Angeles County.
State Farm General, California’s leading seller of homeowner insurance, applied as February began for a 22 percent rate increase on all its California customers to help cover payouts on at least 8,700 claims it received after the fires in Altadena and the Pacific Palisades district of Los Angeles. That would amount to a $740 million per year premium hike.
State Insurance Commissioner Ricardo Lara initially refused that application, but set an informal hearing later this month where he might reconsider.
How do we know this would be a subsidy from residents in areas that have never seen a wildfire and likely never will to mansion owners in places that are historically far more risk prone? Here’s an example: one burned-out beachfront Malibu residence sold three years ago for $85 million. That’s on the high end of the homes lost in January, but the affluent Palisades had hundreds of homes valued at $4 million or more.
Prior to its latest request, State Farm General last June asked for a 30 percent rate increase, or more than $1.3 billion. Essentially, the company wants premiums more than 50 percent above what it has charged under rate increases totaling about 27 percent in 2023. It has not provided sufficient financial data to justify either rate hike request.
The entire idea of forcing all other California homeowners to subsidize payouts to those who lost property in January also departs from longtime national industry practices. One such practice: when state subsidiaries of national companies need extra money, they usually draw on the reserves of the parent company.
Parent State Farm Mutual Automobile Co., headquartered in Bloomington, IL, now has reserves of more than $134 billion, far more than enough to cover any and all losses from the January fires. It has sometimes used those reserves to aid state subsidiaries after hurricanes.
This did not stop Lara from demanding that all Californians pay added premiums to cover half the $2 billion or so that insurance companies must put out to cover losses of the state’s last-resort FAIR plan. The authors of the 1988 Proposition 103 insurance initiative estimate this would come to $60 from every policyholder in California. They say it’s illegal to charge consumers for any of this bailout.
As it stands, State Farm and other companies having their way with Lara would almost double the insurance bills of Californians, even those living nowhere near wildfire zones.
State Farm is not alone. Allstate, which often doubles down on State Farm actions, estimates its January fire expenses at $1.1 billion. The national company has reserves of almost $21 billion, but will likely demand huge property insurance price hikes if State Farm gets them.
This may all seem grossly unfair. Not only are the big companies hitting Californians harder than residents of other states, but they seek to hang onto their huge reserves, supposedly gathered to cover the costs of crises just like this one.
The companies like to say they’ve suffered giant losses in California over the last nine years, State Farm claiming it’s more than $2.8 billion in the red in California in the nine years ending Dec. 31. That’s not necessarily so.
For one thing, it leaves out the large profits of other State Farm companies that sell auto and life insurance.
Not including those profits in their financial statement is plain dishonest. It’s also disingenuous to claim losses from previous fires blamed on power lines and towers. Why? Once electric utilities were forced to pay up for those liabilities, insurance companies recouped many of their fire expenses.
But State Farm, in its newest price increase request, piously said that “We must appropriately match price to risk. That is foundational to how insurance works.”
Also foundational is that when a subsidiary in one state has a shortfall, the parent company steps up, which State Farm Mutual plainly wants to avoid. Lara has evinced no inclination to force it to, either.
All of which means there’s something seriously wrong with the way California’s insurance regulator operates in this era of repeated crises.
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Email Thomas Elias at tdelias@aol.com. His book, "The Burzynski Breakthrough, The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It," is now available in a soft cover fourth edition. For more Elias columns, visit www.californiafocus.net
Suggested pullout quote: “If all this seems grossly unfair, that’s because it is.”