California's largest insurer to pay $7.6 billion to customers affected by Los Angeles wildfires

State Farm General, one of the largest insurers in the United States, estimates that it will pay out about $7.6 billion to its customers affected by the Los Angeles wildfires. It is the first company to offer a figure that helps to measure the disaster caused earlier this year by the Eaton and Palisades fires, which left 28 dead and destroyed 16,200 buildings in the Pacific Palisades and Altadena communities. State Farm estimates that its final expenses will rise to $7.9 billion, after adding $300 million in operating expenses for processing the payments of the policies.

California, home to 40 million people, is one of State Farm's biggest markets. The company owned 2.8 million fire policies there and protected another million homeowners. An analysis by The San Francisco Chronicle estimated that the company owned 20 percent of the policies in effect in the fire-ravaged area , which covers about 37,000 acres spread between two spots east and west of Los Angeles.

FAIR covered 16 percent of those affected by the disaster, making it the second-largest insurer in the damaged areas. It is a state program that offers basic protection to homeowners rejected by major insurers. Its policy amounts were much lower. The state commissioner says FAIR is on track to cover about $4.7 billion. Part of this money, $1 billion, comes from other large private companies, which have contributed to keep the program from going bankrupt.

State Farm General said this week that it has already paid out about $1.75 billion to cover about 9,500 policies. Most of the money comes from its own insurer, the parent company, State Farm Mutual Automobile, which focuses on national auto insurance. In early February, the company said it had paid back $1.26 for every dollar collected in premiums over the past nine years. That reflected about $5 billion in losses.

The company shared in a statement on Tuesday its “deep concern” about the financial pressures that recent natural disasters have left the organization under. The organization is exposed to a downgrade from the rating agencies. S&P Global currently has it at AA, but with a negative outlook. To correct this, State Farm is requesting an “immediate increase” of 22% in the price of residential policies for its clients, something that state authorities have prohibited after the fires. They also declared a moratorium, valid for one year, so that companies in the state do not cancel their services in the affected areas.

State industry regulator Ricardo Lara recently said insurers had paid out about $6.9 billion in fire-related expenses as of Feb. 5. Analysts at JPMorgan estimate the total cost to companies will reach $20 billion, making the fires one of the five most expensive natural disasters in the country’s history. The Camp Fire, one of the most destructive in California, generated $12 billion in expenses in 2018.

The disaster requires a major financial commitment from many of the companies that work in California. Travelers, the ninth-largest insurer in the region by number of clients, expects to pay about $1.7 billion, including its contribution to FAIR. Allstate, the seventh-largest, will spend about $1.1 billion.

As of last year, the state had been the scene of eight of the 10 costliest natural disasters in the United States, according to the insurance company Aon. Despite this, California has been a tough market for insurance companies. They have kept premiums and deductibles low in the hope of attracting more customers. Their rates are lower than the national average. But the risk is greater in times of climate change .

That, along with pressure from regulators, has forced a correction. Some customers have recently seen double-digit increases in their payments. Companies like State Farm and Allstate have limited their operations and are not accepting new customers seeking protection for their homes. And that happened even before the fires, which promise to accelerate the transformation of the industry in the state.