California Insurance Commissioner Ricardo Lara is set to revisit his decision regarding State Farm’s request for an emergency rate hike after a recent meeting with the company’s executives. State Farm, the state arm of the national State Farm Group, is seeking to increase homeowner premiums by an average of 22% on an interim basis, bypassing the standard approval process outlined in California insurance law.
After a closed-door meeting that lasted nearly an hour and a half, Lara stated he would carefully assess the information provided by State Farm, with a decision expected within two weeks. The meeting, held in the Oakland offices of the Insurance Department, included representatives from the department, State Farm, including Chief Executive Dan Krause, and Consumer Watchdog, an advocacy group that opposes the increase. In a press conference following the meeting, Lara said he would request additional information if needed and aims to resolve the matter within the aforementioned timeframe.
“I want consumers to understand why I made the decision,” Lara said.
State Farm’s initial request, made at the beginning of February, sought to implement the “emergency” rate increases starting in May. Lara rejected the request on February 14th, citing the need for more information, a decision made against the recommendation of his staff. The company argues the rate increase is necessary due to rising payouts from the Los Angeles County fires and delays in approving previous rate increase requests.
In a letter dated February 25th, State Farm executives detailed that the company has paid $1.75 billion on approximately 9,500 claims and anticipates total claims payments of around $7.6 billion. The company estimates a decrease in its surplus, dropping from $1.04 billion at the end of 2024 to roughly $400 million following the LA fires.
“This is an unfortunate circumstance for our customers and all Californians, and only worsens SFG’s financial position and related internal and external measures of financial strength and forward-looking claims-paying ability from what they were last June,” the company wrote.
According to Proposition 103, a voter-approved law governing insurance in California, rate increases of 7% or more are subject to public hearings if an intervenor objects. Consumer Watchdog intervened in State Farm’s previous rate requests and is currently objecting to this interim increase.
Consumer Watchdog stated that granting the rate hike would “set a dangerous precedent, effectively allowing insurers to circumvent Proposition 103’s prior approval requirements.” Lara expressed similar concerns regarding this potential precedent.
In an interview, attorneys for Consumer Watchdog expressed concern that the financial data supplied by State Farm, both in the letter and at the meeting, was insufficient. They reiterated their recommendation that the commissioner reject the interim rate request, while hoping Lara seemed open to bringing the matter to a rate hearing, as required by law.
Ben Armstrong, the actuary for Consumer Watchdog, stated that “We need the underlying data” behind the figures the company has publicly provided.
In response to State Farm’s letter, Consumer Watchdog’s statement said, “Granting an ‘emergency interim rate’ increase under these circumstances would set a dangerous precedent, effectively allowing insurers to circumvent Proposition 103’s prior approval requirements.”
In an emailed statement, State Farm spokesperson Sevag Sarkissian said, “Today we took the opportunity to reiterate with Commissioner Lara the urgency needed to approve State Farm General’s interim rate request so that State Farm General can continue helping California customers.”
The meeting held with Lara was characterized as “informal” by the commissioner, and not an official rate hearing.
