California Insurance Commissioner Ricardo Lara provisionally approved St
te 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 wit
h 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 conti
nue 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 p
rocess,” the carrier continued. “In addition, State Farm General will continue to mon
itor 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 pursu
e a $500 million capital infusion from its parent company to restore financial stability. He presented this proposal during a meeting w
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ith 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% fo
r condominium, and 38% for rental dwelling. State Farm in May 2023 stopped writi
ng 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 t
he increases are needed to align cost and risk, and enable State Farm to rebuild capital. Over the last nine years, the lack of alignme
nt has meant that for every $1 collected in premium, the carrier has spent $1.26, resultin
g 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.”
