California Regulator Grants Conditional Approval to State Farm for Homeowners Rate Increase
In a groundbreaking move, California’s Insurance Commissioner, Ricardo Lara, announced today that he would grant State Farm’s request for a 22% average increase in homeowners’ insurance premiums, provided the company meets specific conditions and secures approval at an upcoming public rate hearing. This decision comes amid escalating concerns about the financial stability of the state’s largest provider of homeowners’ insurance.
The conditions set forth by Commissioner Lara include a commitment from State Farm to halt policy cancellations and non-renewals until the end of the year. Additionally, Lara has called for State Farm’s parent company, State Farm Mutual, to inject $500 million into its California entity, State Farm General, to bolster its financial position. State Farm must also justify the need for the provisional rate hikes in a hearing scheduled for April 8, where detailed and updated data will be presented.
Commissioner Lara acknowledged the unprecedented nature of his decision, emphasizing the importance of balancing the financial burdens faced by insurers with the protection of policyholders. “It is crucial that State Farm and its parent company fulfill their obligations without unduly burdening their customers,” Lara stated. The upcoming public hearing will serve as a forum for transparency and accountability in assessing the necessity of these rate increases.
State Farm’s request for emergency rate hikes follows the devastating wildfires that ravaged parts of Los Angeles County earlier this year. The insurer anticipates over $7 billion in wildfire-related claims, a significant depletion of its surplus, and a potential downgrade in its credit rating, threatening its ability to meet mortgage insurers’ requirements.
With nearly 3 million homeowners insured by State Farm in California, including over 1 million homeowners, the company has been grappling with the fallout of its rate hike requests from last summer, which had not received approval from the Department of Insurance after months of negotiations. The special approval for provisional rate increases was sought as a means to address the pressing financial challenges faced by the insurer.
Under California law, insurers seeking rate hikes of 7% or more are required to undergo a rate hearing if stakeholders raise objections, as is the case with State Farm’s applications. Rate hearings are a rare occurrence, with the last one taking place in 2015, also involving State Farm.
If State Farm successfully demonstrates the need for rate increases at the upcoming hearing, provisional rates will rise by an average of 22% for homeowners, 15% for renters and condominiums, and 38% for rental properties, effective June 1. The company had initially proposed a May 1 implementation date for the rate hikes.
State Farm will still need to undergo a rate hearing for its summer rate requests, with the Department of Insurance indicating that this hearing will take place later this year. A judge will preside over the hearing for the provisional rate request at the department’s office in Oakland, with a proposed decision expected within 10 days of the hearing.
Commissioner Lara’s decision comes on the heels of a recent in-person meeting between his department, State Farm executives, and Consumer Watchdog, an advocacy group that has raised concerns about the insurer’s rate hike requests. The parties also held a virtual meeting earlier this week, during which Commissioner Lara provided a preview of his decision.
During the meeting, State Farm General’s CEO, Dan Krause, expressed willingness to inject at least $250 million into its California subsidiary if the provisional rate requests were approved. Representatives from State Farm and Consumer Watchdog were not immediately available for comment on the recent developments.
As the regulatory landscape continues to evolve, the outcome of State Farm’s rate hike requests will have far-reaching implications for California homeowners and the insurance market at large. Stay tuned for updates on this developing story as it unfolds.
This article was originally published by CalMatters.
