California’s insurance commissioner turned down a request by State Farm General for an emergency 22% hike of its home insurance rates due to the Los Angeles wildfires, saying the increase wasn’t warranted.
Commissioner Ricardo Lara said the state’s largest home insurer has failed to prove it needs the increase or explain how the additional premium dollars would affect its prior decisions to stop writing new home policies in the state and not renew existing policyholders.
“My goal is to make sure policyholders do not have to pay more than is required. 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 wrote in a letter to State Farm posted on the insurance department’s website.
The insurer asked for the emergency rate hike earlier this month — as well as increases of 38% for rental dwellings and 15% for renters and condo owners — with the new rates taking effect May 1. The company said it needed the funds to replenish its capital due to the costs of the fires as it awaits a decision on an outstanding request for a rate hike filed last year.
The insurer, a subsidiary of State Farm Mutual Automobile Insurance Co. of Bloomington, Ill., said it has already received at least 8,700 claims and paid more than $1 billion to customers. S&P Capital IQ estimates the losses will total $6.5 billion, prior to reinsurance payments.
“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,” State Farm General said Friday.
Last March, the company announced it would not renew 72,000 home, apartment and other property policies in California, citing wildfire risks and other concerns. That followed its decision in May 2023 to stop writing new business, homeowners, and other personal property and casualty insurance in the state, with the exception of personal auto policies.
Then in June, State Farm asked for a 30% rate increase for its homeowners policies and other rate hikes that have yet to be decided. That request took state officials by surprise, with Lara saying at the time it raised “serious questions about its financial condition.”
State Farm said its latest emergency request is necessary to rebuild the company’s capital base so it will not have to “further constrain” the company’s ability to provide home insurance in the state. Insurance industry ratings agencies have said they expected premium increases due to the fires.
The insurer said it has lost $2.8 billion over the last nine years, including gains from investment income. It also noted State Farm General’s financial rating was downgraded last year by AM Best. However, State Farm Group, led by State Farm General’s parent company, was given a superior financial rating in December by AM Best.
In his letter, Lara asked State Farm to provide further documentation justifying its rate request, more information about its allegedly deteriorating financial condition and an explanation as to why State Farm Mutual could not provide financial support to its California subsidiary.
He requested a Feb. 26 meeting with State Farm to address the issue that also would be attended by Consumer Watchdog, a Los Angeles advocacy group that has intervened in the rate review and urged Lara to reject the rate hike. The group had a mixed response to Lara’s decision.
“We agree that the company needs to provide more information, but they need to do it in a formal hearing process where we have discovery rights and the rights to examine State Farm’s books and experts,” said Jamie Court, president of the group. “We don’t believe he has the right to grant an interim rate hike absent a formal hearing.”
State Farm has said it is prepared to give refunds for customers who pay the interim emergency rates if the department approves lower increases for the rate hikes sought last year. The company previously received a 6.9% bump of its homeowner rates in January 2023 and a 20% hike that went into effect last March.
State Farm General, which had about a 20% share of the homeowners insurance market in 2023, insures about 1 million homeowners in the state and has 1.8 million other policies in force.
The Jan. 7 conflagrations have roiled a state insurance market that was already troubled due to a series of large wildfires within the last decade, though none as catastrophic as the L.A. fires, which are projected to cost insurers as much as $45 billion.
On Friday, the insurance department unveiled a package of fire-related bills authored by multiple legislators. They include legislation that would provide residents tax-free grants to make homes more fire resistant, require insurers to pay fire claims without a detailed inventory list and establish a 15% cap on fees for public adjusters hired by policyholders to submit claims to their insurers.
Another bill would give the commissioner the authority to issue moratoriums barring insurers from non-renewing and canceling the policies of businesses and other policyholders after large fires. It would extend a power already in place for homeowner policies, which Lara has wielded following the L.A. fires.
