State Farm General, California’s largest home insurer, is being accused of boosting the profits of its parent company at the expense of state policyholders — while claiming it’s in financial distress and in need of a 30% rate hike.
The company bought hundreds of millions of dollars of excess reinsurance from parent State Farm Mutual Automobile Insurance Co. over the past decade, while getting little back in return, according to Consumer Watchdog, a Los Angeles group that is challenging the hike.
Insurers buy reinsurance to protect themselves from catastrophic events that could put them out of business. It is often acquired from multinational firms that specialize in the product, but subsidiaries of large insurance companies sometimes buy reinsurance from a parent.
Even during the catastrophic fire years of 2017 and 2018, during which thousands of structures were destroyed by the Thomas fire in Ventura County, the Camp fire in Butte County and others, the company would have been better off not buying the reinsurance it got, the group alleges.