SACRAMENTO, Calif. — State Farm wants emergency approval of a 22% average increase on homeowners insurance in California, but the state’s Insurance Commissioner says he needs more information before he can make a decision.

California Insurance Commissioner Ricardo Lara sent a letter to State Farm Friday, demanding answers before he decides whether to approve the company’s emergency rate hike request.

On Feb. 3, State Farm General Insurance Company submitted a request to the California Department of Insurance (CDI), asking Commissioner Lara to approve an emergency interim rate increase on four different lines of insurance: 22% for homeowners, 15% for renters and condominium-owners and 38% for rental dwelling (i.e. landlord insurance). As of Feb. 1, State Farm said, it had received more than 8,700 claims and paid out more than $1 billion, estimating the company “will ultimately pay out significantly more, as collectively these fires will be the costliest disasters in the history of State Farm General.”

State Farm requested these increases go into effect May 1, citing concern over their “swift capital depletion.”

In Friday’s letter, Commissioner Lara told State Farm they had not met the burden of proof required under California’s Prop 103 to show they need this emergency rate increase.

“My goal is to make sure policyholders do not have to pay more than is required,” Commissioner Lara said. “In light of the recent Los Angeles wildfires, State Farm’s customers need real answers about why they are being asked to pay more and what responsibility the company’s leadership is taking to get its financial house in order.”

He laid out a list of questions State Farm must answer if the insurer wants him to consider approving the request. Lara scheduled an in-person “informal conference” for Feb. 26 between CDI, State Farm and Consumer Watchdog, a so-called “intervenor” – a consumer advocate position allowed in Prop 103.

“State Farm contends that the recent Los Angeles wildfires have put ‘tremendous strain on the company’s already-diminished surplus and very significant pressure on internal and external (regulatory and rate agency) measures of financial strength and claims-paying ability,’” Lara wrote. “State Farm’s financial condition is of utmost concern for its California customers, and a rate hearing on State Farm’s pending applications may be necessary to answer serious questions about its financial condition.”

In a statement issued in response to Lara’s letter Friday, Consumer Watchdog agrees State Farm needs to provide more information in this emergency rate increase request but says an “informal conference” is not sufficient and wants CDI to set a public hearing “where there is formal discovery and due process rights…not a private meeting with the company.”

Lara says State Farm has been ringing an alarm to CDI about its financial stability since March 2024, when “State Farm informed the Department that its capital position had severely deteriorated in 2022 and 2023, despite the fact that it had paid no significant wildfire claims for several years. State Farm acknowledged it had limited writings for California consumers in areas at higher risk of wildfires for many years. In fact, State Farm ceased writing new policies in California in May 2023. And State Farm non-renewed 30,000 homeowners policies in March 2024 – many in areas of high risk including communities affected by Southern California wildfires,” Lara’s letter says.

State Farm received one 6.9% average rate increase approval in Nov. 2021 (effective Jan. 2022) and another in Jan. 2023 (effective June 2023). It received approval from CDI for an additional 20% average increase for homeowners and condominium insurance in Dec. 2023 (effective March 2024).

In addition to the pending emergency interim rate request filed earlier this month, State Farm has separate pending requests dating back to June 27, 2024: 30% average increase for homeowners, 41.8% for renters and condominium-owners and 38% for rental dwelling (i.e. landlord insurance), which included “a variance rarely utilized unless an insurer’s solvency is at issue,” Lara’s letter says.

The questions Lara is demanding State Farm answer by Feb. 26 include the following:

• How would granting an emergency rate impact State Farm’s business decisions to pause writing of new residential coverage and non-renew policies?
• Other than rate increases, what other plans does State Farm have to address its financial challenges? For example, would State Farm’s parent company, State Farm Mutual Automobile Insurance Company, be willing or able to provide financial support to State Farm as it has in other similar situations?
• In the absence of non-wildfire catastrophic losses in 2022 and 2023, how does State Farm explain the significant decrease in its policyholder surplus?
• What has State Farm done to prevent its surplus from further deterioration between May 2023 to present besides shed policyholders through ceased writings and non-renewals?

In his letter, Lara notes his staff recommended the Commissioner approve State Farm’s emergency request “subject to refunds with interest pending a final decision of the legality of the rate in a rate hearing.”

ABC10 reached out to State Farm for a response Friday. A spokesperson sent the following statement:

“We are very disappointed the Commissioner ignored his department’s recommendation to take the critical and necessary step to approve State Farm General’s request for interim rate increases associated with our June 2024 filings.

 “This lack of approval sends a strong message to State Farm General about the support it will receive to collect sufficient premiums in the future to protect Californians against the risk of loss to their homes.

 “We have gone to great lengths to clearly answer the questions outlined by the Commissioner. While we’re positioned to handle all of the claims associated with the most recent wildfires, State Farm General must seriously consider its options within the California insurance market going forward.”

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