California Insurance Commissioner Ricardo Lara has allowed a provisional emergency interim State Farm home insurance rate increase following the January wildfires while raising questions about the company’s financial stability.
The CDI said in a press release Friday that “unprecedented times call for decisive action,” and the increase is necessary to “safeguard Californians during the ongoing insurance crisis and stabilize the market.”
However, State Farm must justify the increase with data during an April 8 public hearing.
Lara has 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 the proposal during a meeting with State Farm representatives, CDI, and the intervenor in the matter.
“For months, the Department of Insurance staff have engaged in informal discussions with State Farm and the intervenor, to reach a resolution regarding State Farm’s request for increased rates,” the release states. “However, the parties did not reach an agreement, with State Farm asserting that its financial situation has deteriorated. State Farm then reached out directly to Commissioner Lara requesting an emergency interim rate increase.
During a meeting with Lara in February, State Farm said that while it can cover claims from the Southern California wildfires, the disaster has worsened its financial condition, according to the release.
“Lara has pressed the state’s largest home insurer for a plan to improve its financial standing and maintain its commitment to its more than 1 million California homeowner customers,” the release states.
Lara added, “The role of the insurance commissioner involves balancing a stable and sustainable insurance market that serves consumers with effective oversight. To ensure long-term choices for Californians, I had to make an unprecedented decision in the short term. State Farm claims it is committed to its California customers and aims to restore financial stability. I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers. The facts will be revealed in an open, transparent hearing.
“Currently, too many Californians live in fear of having their insurance policies non-renewed. This anxiety perpetuates misinformation and discourages consumers from accessing their entitled benefits. This situation is unacceptable. I will remain vigilant in ensuring that State Farm processes claims fairly, fully, and promptly, and stands by its California customers.”
He added that questioning State Farm in an official hearing will promote transparency and a path forward.
“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. We will finally get to the bottom of State Farm’s financial condition. I am confident that my approach will provide Californians with greater choices in a competitive and stable insurance market — exactly what they deserve.”
The FAIR Plan is a syndicated fire insurance pool of all insurers licensed to conduct property and casualty business in California. Each member company reportedly participates in the profits, losses, and expenses of the plan in direct proportion to its market share of business written in the state.
Consumer Watchdog, a consumer advocacy group, said in a March 14 press release that it will prosecute the case at the hearing.
“It’s a victory for consumers that State Farm will now have to make its case in a public hearing before a judge and prove a rate hike is justified,” said Carmen Balber, executive director of Consumer Watchdog, in the release. “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,.”
Consumer Watchdog sent two letters to Lara in February objecting to State Farm’s request for the emergency interim rate increase, citing a lack of justification and an attempt to bypass California’s strong consumer protection laws.
“State Farm is seeking an immediate 22% rate increase for homeowners, along with a 15% increase for renters and condo owners and a 38% increase for rental dwellings — not because it cannot pay wildfire claims but because it wants to protect its Wall Street credit rating,” Consumer Watchdog stated in a February press release. “However, as the letter states, S&P Global rates State Farm and its parent company, State Farm Mutual which has $194 billion in surplus and reserves, together. They have an AA rating — the second-highest possible rating.
According to Consumer Watchdog’s analysis of State Farm’s filings:
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- “No evidence that wildfire claims will reach the $7 billion State Farm suggests.
- “$4.4 billion in reserves and surplus already available to cover claims.
- “Up to $9 billion in reinsurance commitments from State Farm’s parent company after the company pays $250 million in claims per event, although details remain undisclosed.
- “No explanation for why its parent company, State Farm Mutual Automobile Insurance Company, with $194 billion in surplus and reserves, cannot provide support to its affiliate, as happened in Texas.”
State Farm’s previously pending rate requests can and should be reviewed through Proposition 103’s required process, Consumer Watchdog said.
Consumer Watchdog has received reports from consumers who are worried that State Farm won’t be able to pay their claims based on the company’s request for an emergency rate increase.
“Based on their request, it does not appear that even State Farm itself is making this claim,” Consumer Watchdog said, in the release. “Instead, State Farm is using its request and the media attention it has received to create an atmosphere of fear — misleading policyholders into believing its financial condition is at risk when, in reality, its primary concern appears to be to protect its Wall Street credit rating.”
Earlier this month, a State Farm executive was fired following the release of a recording where he said the company’s California rate hikes are “kind of” orchestrated, according to a Los Angeles Times story.
O’Keefe Media Group released a video of Haden Kirkpatrick, State Farm Mutual’s former vice president for innovation and venture capital, responding to a question about the rate hikes being orchestrated with the response, “It kind of is, but not in the way you would think.”
“We’ll go to the Department of Insurance and say, ‘We’re overexposed here, you have to let us catch up our rate,’” Kirkpatrick says on the video. “And they’ll say, ‘Nah,’ because the department of insurance and the insurance commissioner is an elected position. And he’ll say, ‘Nah,’ and we will say ‘OK, then we are going to cancel these policies.’”
In December, CDI approved State Farm’s request to raise auto insurance rates in California by an average of 17.7%, which began at the end of January, according to the San Francisco Chronicle. The increase followed a 21% in February 2024.
“The company told regulators that the 21% rate hike was not enough to cover increased costs caused by lingering supply chain issues from the COVID-19 pandemic and labor shortages, which it says have driven up the cost of auto repairs and car values,” the Chronicle reported.
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Alice J. Roden started working for Trending Insurance News at the end of 2021. Alice grew up in Salt Lake City, UT. A writer with a vast insurance industry background Alice has help with several of the biggest insurance companies. Before joining Trending Insurance News, Alice briefly worked as a freelance journalist for several radio stations. She covers home, renters and other property insurance stories.