California Approves State Farm’s Emergency Rate Hike
California’s insurance regulator has approved State Farm’s request for an emergency rate hike, which could raise property insurance rates by up to 38% starting June 1. The decision comes as California continues to grapple with the issue of insurers pulling out of the state due to high wildfire risk.
SACRAMENTO, Calif. — California’s top insurance regulator announced on Tuesday that State Farm can begin raising premiums by 17% for all of its approximately 1 million home insurance customers in the state. The increase is intended to help State Farm rebuild its capital following the devastating Los Angeles wildfires.
State Farm has argued that the emergency rate hikes are necessary to avoid a financial crisis that could force the company to drop more California policies. The insurer was already struggling financially before this year’s wildfires, which destroyed over 16,000 buildings in January.
The rate increase will apply to all State Farm homeowners in California, with varying rates for different types of properties. The company initially requested a 22% rate increase for homeowners but revised it to 17% during a recent hearing. The request also includes a 38% hike for rental owners and 15% for tenants.
In exchange for the rate hike, State Farm will receive a $400 million cash infusion from its parent company and has agreed to halt some nonrenewals through the end of this year. The new rates are temporary and will be revisited when the state considers State Farm’s request from last year for a 30% rate increase for homeowners.
Insurance Commissioner Ricardo Lara stated that he expects State Farm to “provide the highest level of service to its California customers and to fulfill its promises.” Lara also emphasized that State Farm must justify its financial condition and detail its recovery plan in a full rate hearing.
State Farm said that the approval is “a critical first step for State Farm General’s (SFG) ability to continue serving our California customers.” The company has paid out over $3.51 billion and is handling more than 12,600 claims as of this week.
However, consumer advocacy group Consumer Watchdog expressed disappointment with the ruling, stating that it “would make consumers pay now but allow State Farm to wait months before having to show its math.”
State Farm has committed to refunding the emergency rates if California later approves lower rates. The insurer last received state approval for a 20% rate increase in December 2023.
