State Farm emergency rate hike request gets pushback

The California Department of Insurance (CDI) promised an urgent response to State Farm's Februrary 3 request for an emergency rate increase.

"To protect millions of California consumers and the integrity of our residential property insurance market, the Department will respond with urgency and transparency to recommend a course of action for Commissioner Ricardo Lara," stated Gabriel Sanchez, spokesman for CDI, in an email response.

Sanchez noted that the commissioner's moratorium on cancellations and non-renewals after the L.A. wildfires does not prevent insurers from billing customers for premiums.

State Farm asked for an emergency 22% average increase in property insurance rates, including a 38% increase for renters' insurance, that would take effect May 1. This increase would amount to $740 million per year. In June 2024, State Farm asked CDI for a 30%, $1.3 billion increase in homeowners rates, which is still pending.

The entity making these requests is State Farm General, the California affiliate of parent company State Farm Mutual. In a statement on its website, State Farm said the costs of the January wildfires will deplete State Farm General's capital available to pay claims. State Farm General has already paid more than $1 billion in claims for the wildfires and will be paying out more, according to the statement. State Farm General also pointed to AM Best's March downgrade of its financial strength rating.

"With further capital deterioration as a result of the wildfires, additional downgrades could follow," the company said in its statement. "If that were to happen, customers with a mortgage might not be able to use State Farm General insurance on the collateral backing for their mortgage."

Consumer Watchdog, registered as an intervenor in CDI's consideration of the pending rate increase request from June, has criticized State Farm's argument that its financial crisis requires a rate increase. That increase was not granted, according to Consumer Watchdog, because State Farm refused to disclose financial data. 

"If State Farm needs money, the parent company should step in with its $130 billion surplus, not California homeowners, some of whose homes are in ashes," said Carmen Balber, executive director of Consumer Watchdog, in a press release. The consumer advocacy group requested relevant information from State Farm 14 times from September 13 through January 21. The group calculated that State Farm would have to pay out about $9 billion in claims to justify the 22% emergency increase.

"State Farm is required to prove its claims of poverty and financial disaster; it has refused to do so since last September. Now it's trying to cash in on a terrible tragedy by detouring the rules that protect state consumers from insurance price gouging – at a time when those safeguards are more important than ever," said Balber. "Insurance Commissioner Lara must require State Farm to prove it needs this staggering increase."

Proposition 103, California's law regulating insurance rate increases, since 1988, requires the insurance commissioner to decide on rate increases challenged by an intervenor, in this case Consumer Watchdog. CDI plans to meet with its rate review experts, State Farm General and Consumer Watchdog and issue a recommendation on the new emergency rate increase request, according to Sanchez.