California Wildfire Insurers Face Lawsuits Over Collusion and Rate Hikes

In response to the severe wildfires in Los Angeles’ Pacific Palisades and Altadena neighborhoods in January, major insurers such as State Farm and Farmers are facing legal challenges. Two lawsuits filed in Los Angeles Superior Court allege that these companies colluded to push homeowners toward California's FAIR Plan, the state's insurer of last resort, by systematically dropping homeowners before the fires and hiking rates afterward. This alleged coordination has raised concerns around anti-competitive practices within the insurance market.

The plaintiffs argue that this alleged collusion allowed insurers to benefit from higher premiums while depriving homeowners of adequate coverage options during a critical period. The wildfires resulted in 30 fatalities and total property and capital losses estimated up to $164 billion, with insured losses accounting for $75 billion, highlighting the scale of financial strain on the insurance industry and homeowners alike.

The FAIR Plan, intended as a safety net for those unable to find coverage in the private market, is facing financial pressure in the wake of these payouts. With only $377 million in reserves plus reinsurance, experts warn the Plan may require a bailout. If the FAIR Plan exhausts its funding, remaining claims would be absorbed by licensed property insurers in California, which could subsequently surcharge their own policyholders to cover costs, potentially triggering statewide premium increases.

Separately, State Farm is pursuing a 17% rate increase statewide, citing the need to restore its financial strength after absorbing an estimated $7.6 billion in direct wildfire losses in Los Angeles County. The California Insurance Commissioner has provisionally approved this rate hike pending a formal hearing, underscoring ongoing regulatory challenges balancing insurer solvency with consumer protection.

These developments occur amid broader scrutiny over State Farm, Berkshire Hathaway, and other insurers’ investment strategies, including their significant holdings in fossil fuel industries. While these factors contribute to complex regulatory and market dynamics, current lawsuits and rate filings highlight systemic issues affecting California’s wildfire insurance landscape.

Insurance Commissioner Ricardo Lara’s office, responsible for overseeing insurer conduct and market stability, has faced criticism for its handling of wildfire claims and rate approvals. Concurrently, wildfire victims continue to call for investigations into claim delays and denials, highlighting ongoing tensions between insurers, regulators, and consumers in the aftermath of California’s devastating wildfire season.