California Insurance Commissioner Ricardo Lara has approved a temporary, emergency 17% property insurance rate hike for State Farm customers, the state’s largest property insurance provider. The decision comes after January wildfires caused hundreds of billions of dollars in economic losses, threatening to drive State Farm out of California.
Administrative Law Judge Karl-Fredric Seligman ruled that State Farm is experiencing ‘extraordinary financial distress’ that threatens its ongoing operations. The insurer will receive a $400 million cash infusion from its parent company and has agreed not to implement new block non-renewal programs through 2025.
The rate hike is intended to balance consumer protections with the need for financial stability. State Farm has lost $5 billion over the last nine years in California, paying out $1.26 in claims for every dollar in premiums collected. The company had to stop underwriting new policies in 2023 due to unsustainable losses.
Consumer Watchdog has criticized the decision, citing concerns over State Farm’s claim handling practices following recent wildfires. The organization reported that policyholders have faced delays, denials, and inadequate damage assessments, leading to financial hardship.
‘It adds insult to injury for consumers to pay significantly more when they may be recovering from fires while State Farm mishandles their claims,’ said Carmen Barber, executive director of Consumer Watchdog.
The rate hike approval highlights the challenges faced by insurers in California due to rising wildfire risks and regulatory constraints. Since Proposition 103 passed in 1988, state regulators have had to approve any rate hikes, leading to rates not keeping pace with increasing claims and risks.
If State Farm had left California, its approximately one million customers might have been forced into the state-regulated FAIR Plan or other remaining insurers, potentially facing higher premiums and lower coverage limits.
