State Farm’s Rate Hike Request Denied by California Insurance Commissioner
Following significant losses from the recent Los Angeles fires, California Insurance Commissioner Ricardo Lara has blocked a request from State Farm for an “emergency” increase in homeowner insurance premiums. The proposed increase, averaging 22%, along with increases for renters (15%) and condominium owners (38%), was made by the insurer last week.
Lara, who has been actively encouraging insurance companies to continue writing policies in California despite the increasing wildfire risk, denied State Farm’s request, going against the recommendations of his department’s staff experts. He has requested to meet with State Farm executives in Oakland on February 26th to clarify the need for such a rate increase.
“The burden is on State Farm to demonstrate that interim relief is warranted under the circumstances,” Lara stated in a letter to State Farm leadership. “My goal is to make sure policyholders do not have to pay more than is required. In light of the recent Los Angeles wildfires, State Farm’s customers need real answers about why they are being asked to pay more and what responsibility the company’s leadership is taking to get its financial house in order.”
The company stated that the company is “very disappointed” by Lara’s decision and will “seriously consider its options within the California insurance market going forward.”
State Farm indicated in a written statement they had already paid $1 billion in claims from the Los Angeles County fires and expected to pay significantly more. The company had been waiting for approval on rate increases from the previous year before making the interim request. Lara acknowledged in his letter that his staff recommended last week that he approve the company’s request, but said “my primary responsibility is to the people of California.”
In his letter, Lara asked for clarity on several issues, including:
- Changes from the company’s request last summer.
- Other steps the company is taking to improve its finances aside from increasing rates.
- Whether State Farm’s parent company is prepared to provide assistance.
- The rate increase’s potential impact on the company’s 2023 decision to stop writing new policies in California, which was followed by not renewing the policies of tens of thousands of customers.
In the letter, Lara mentioned that State Farm received increases in recent years and posed questions about the significant decrease in the company’s policyholder surplus, given the absence of major non-wildfire losses in 2022 and 2023.
Dan Krause, chief executive of State Farm General, indicated that the company has nearly 3 million policies in the state. He requested the commissioner bypass standard hearings, which are otherwise required by state law when an insurer requests rate increases above 7% and contested by an intervenor, writing “there is simply too much at stake for SFG’s customers and the broader market if any rate increase has to wait on a full hearing or other resolution in the normal course.”
Consumer Watchdog, an advocacy group that intervened in State Farm’s previous rate requests, will also be present at the upcoming meeting. Consumer Watchdog has urged the commissioner to reject the rate increases, accusing the company of misleading policyholders. The consumer advocacy group argued that a formal hearing is necessary for transparency but plans to participate in the upcoming meeting. Joel Laucher, of consumer advocacy group United Policyholders, expressed concern over the situation becoming a case of “brinkmanship.”
Property owners in California have faced challenges with insurance availability and affordability in recent years, with many turning to the FAIR Plan for coverage. This week, Lara approved a $1 billion lifeline for the FAIR Plan, funded by insurance companies operating in California, as it deals with claims from recent Los Angeles-area fires, where its member companies will take advantage of their new ability to try and recoup half of that money from their customers by charging them a one-time fee.
