California Insurance Commissioner Ricardo Lara provisionally approved State Farm’s request for a 22% interim rate hike, the California Department of Insurance announced on Friday.
The approval is on the provision that the company can justify the hike with data in a public hearing scheduled for April 8.
Ahead of the decision, company executives and representatives of the consumer group Consumer Watchdog pled their opposing cases in letters Lara.
Lara in mid-February opted not approve the rate request from State Farm, instead calling a meeting with the carrier to get some answers about the carrier’s financial situation.
The carrier, the state’s top homeowners insurer, is partly blaming the devastating Los Angeles wildfires for the 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 of the L.A.-area wildfires that swept through the region and destroyed tens of thousands of homes in January.
State Farm’s emergency rate increases would have been effective May 1, and includes 22% for homeowners, 15% for renters, 15% for condominium and 38% for rental dwelling. Despite multiple approved rate changes, State Farm stopped writing new policies in California and non-renewed thousands of existing policies.
State Farm said at the time of its request that the increase is needed to align cost and risk and enable State Farm to rebuild capital. Over the last nine years, the lack of alignment has meant that for every $1 collected in premium, the carrier has spent $1.26, resulting in more $5 billion in cumulative underwriting losses, according to State Farm
In May 2023, State Farm stopped writing any new policies in California. Several other large carriers made similar moves around that time.
Lara this week 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 this proposal during a meeting with State Farm representatives, the CDI and the intervenor in the matter.
During the Feb. 26 meeting, State Farm informed the commissioner that while it can cover claims from L.A. wildfires, the disaster has worsened its financial condition.
“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.”
Consumer Watchdog has been reached out to for comment.
State Farm is the state’s largest homeowners insurer. Following State Farm, the state’s biggest homeowners insurers are Farmers Insurance Group, Liberty Mutual Insurance Companies, CSAA Insurance Group, Mercury Insurance Group, Allstate Insurance Group, Auto Club Enterprises, USAA Group and Travel
Topics
California
Oklahoma
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