California Insurance Commissioner Ricardo Lara provisionally approved State Farm’s request for a 22% interim homeowners insurance rate hike, the California Department of Insurance announced on Friday.
The approval depends on whether the company can justify the rate increase with data during a public hearing scheduled for April 8.
In a statement, State Farm said, “It’s time for certainty in the California insurance market for our customers. The provisional nature of today’s decision does not improve that certainty but it’s a step in the right direction. We are moving forward with implementing this provisionally approved rate and will continue to work with the California Department of Insurance for a sustainable future for the California insurance market.”
“State Farm General has worked openly and honestly with all parties in this process,” the carrier continued. “In addition, State Farm General will continue to monitor capacity to support its risks and build sufficient capital for the future.”
Lara this week also called on State Farm to halt non-renewals and pursue a $500 million capital infusion from its parent company to restore financial stability. He presented this proposal during a meeting with State Farm representatives, CDI, and an intervenor.
State Farm’s rate increases – if they stand – would be effective June 1, and include 22% for homeowners, 15% for renters, 15% for condominium, and 38% for rental dwelling. State Farm in May 2023 stopped writing new policies in California and non-renewed thousands of existing policies.
Lara in mid-February opted not to approve the rate request from State Farm, instead calling a meeting with the carrier to get some answers about its financial situation.
Bloomington, Illinois-based State Farm said at the time of its request that the increases are needed to align cost and risk, and enable State Farm to rebuild capital. Over the last nine years, the lack of alignment has meant that for every $1 collected in premium, the carrier has spent $1.26, resulting in more $5 billion in cumulative underwriting losses, according to State Farm.
Ahead of today’s decision, company executives and representatives of the consumer group Consumer Watchdog pled their opposing cases in letters to Lara.
During a Feb. 26 meeting, State Farm informed the commissioner that while it can cover claims from L.A. wildfires, the disaster worsened its financial condition. The Golden State’s top homeowners insurer partly blamed the devastating Los Angeles wildfires for its rate request. As of February 14, the carrier reported roughly 11,400 total home and auto claims, paying out more than $1.35 billion.
Insurance companies have so far paid out more than $12 billion for losses from the two biggest L.A.-area wildfires that swept through the region and destroyed tens of thousands of homes in January.
“To resolve this matter, I am ordering State Farm to respond to questions in an official hearing, promoting transparency and a path forward,” Lara stated. “It is evident that other California insurers are unable to absorb State Farm’s existing customers, which poses a significant risk of these customers ending up on the FAIR Plan—a scenario we all wish to avoid as my Sustainable Insurance Strategy is implemented.”
Consumer Watchdog responded to the commissioner’s decision, noting that it is provisional, and not an actual approval.
“The commissioner called a hearing as Consumer Watchdog has been urging since State Farm made its unprecedented request for a $900 million ’emergency’ rate hike,” Consumer Watchdog said in a statement. “It’s a victory for consumers that State Farm will have to make its case in a public hearing before a judge, and the judge will decide if a rate hike is justified. The company has so far failed to back up its request, and unless State Farm proves otherwise the outcome of a hearing should be a rejection.”
State Farm is the state’s largest homeowners insurer. Following State Farm, the state’s biggest homeowners insurers are Farmers Insurance Group, Liberty Mutual Insurance Companies, CSAA Insurance Group, Mercury Insurance Group, Allstate Insurance Group, Auto Club Enterprises, USAA Group, and Travelers.
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California
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