California Insurance Commissioner Ricardo Lara has put the brakes on State Farm’s request for an “emergency” premium increase, setting the stage for a potentially significant clash with the state’s largest insurer. Lara rejected the company’s proposal for an average 22% rate hike for California homeowners, pending the provision of additional information. This decision comes despite the recommendation of his own staff experts, who had advised approval of the increase.
Lara, who has been actively encouraging insurance companies to continue writing policies in the state amidst growing wildfire risks, expressed his need for greater clarity in a letter to State Farm executives. He has summoned them to an “informal conference” at the Insurance Department’s office in Oakland on February 26 to address questions about the request. “The burden is on State Farm to demonstrate that interim relief is warranted under the circumstances,” the commissioner stated in his letter. “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.”
State Farm responded with a written statement, saying it “must seriously consider its options within the California insurance market going forward.” The statement further expressed disappointment in the Commissioner’s decision to ignore the department’s recommendation, and that the company had “gone to great lengths” to address the commissioner’s concerns. When questioned regarding the company’s attendance at the upcoming meeting, spokesperson Steve Baldwin said in an email, “We are aware of the Commissioner’s letter and upcoming meeting and have nothing additional to add at this time.”
The company’s initial request, made last week, encompassed average interim rate increases of 22% for homeowners, 15% for renters, and 38% for condominium owners. State Farm cited $1 billion in claims already paid out related to the Los Angeles County fires, with expectations of substantial further payouts. The firm was aiming to implement these increases starting in May. Notably, this request follows an earlier period where State Farm had been awaiting the Insurance Department’s approval of rate increase requests submitted in the previous year.
In his letter, Lara acknowledged his staff’s recommendation of approval, but underscored his primary responsibility to the people of California. He included a series of specific inquiries, including an explanation of changes since State Farm’s prior request from the previous summer, as well as details about the company’s additional actions to improve its financial position beyond rate adjustments. The commissioner also sought insight into the potential impact of approving the request on the company’s 2023 decision to cease writing new policies in California, followed by their decision last year to not renew tens of thousands of existing policies.
Lara highlighted that the company had received rate increases of 6.9%, 6.9%, and 20% in 2022, 2023, and 2024, respectively, with the department’s approval. He enquired, “In the absence of non-wildfire catastrophic losses in 2022 and 2023, how does State Farm explain the significant decrease in its policyholder surplus?”
Dan Krause, chief executive of State Farm General, the California arm of the State Farm Group, expressed in a February 3 letter that the company has almost 3 million policies in the state, including 1 million homeowner policies. He requested the commissioner to bypass standard hearings, which are mandated by state law when rate increases exceed 7% and are contested by an intervenor. Krause wrote there was 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 Weighs In
The meeting requested by Lara for State Farm will also include Consumer Watchdog, the consumer advocacy group that previously intervened in the company’s rate requests. Consumer Watchdog urged the commissioner to reject the interim rate increases in a press release, alleging that State Farm was “misleading policyholders into believing its financial condition is at risk.”
The group expressed mixed reactions to the commissioner’s action, insisting that he must adhere to the law and conduct a public rate hearing. “The Commissioner is right to call for more scrutiny of State Farm, which has so far stonewalled information requests,” according to Pam Pressley, an attorney for the group, in a press release. She added that the outstanding issues need to be raised and answered in a formal hearing. Despite their concerns, the group plans to attend the meeting on February 26, according to Consumer Watchdog President Jamie Court.
Michael Soller, an insurance department spokesperson, said a public rate hearing is only necessary when the involved parties do not come to an agreement. Joel Laucher, a former chief deputy commissioner at the insurance department and now a program specialist at United Policyholders, suggested that all parties involved avoid “brinkmanship.” He also noted that it may be in State Farm’s best interest to accept an increase less than 7% to avoid the intervenor process.
Property owners in California have struggled with insurance issues in recent years. Many homeowners have had to use the FAIR Plan, a pool funded by insurance companies that provides fire insurance by law to those unable to obtain it elsewhere. Additionally, Lara recently approved a $1 billion lifeline to the FAIR Plan, which stated it was at risk of running out of money to operate as it pays out claims related to the Los Angeles-area fires. Its member companies are expected to take advantage of their new ability to try to recoup half of that money from customers by charging them a fee. Last year, the commissioner rolled out a multi-part effort to address insurance availability in the state, which took effect right before the L.A.-area fires.
