California regulator mulls State Farm's request for 22% premium hike for
homeowners after LA fires
[March 15, 2025] By
TRÂN NGUYỄN
SACRAMENTO, Calif. (AP) — California's top insurance regulator on Friday
said he would approve an emergency request by State Farm to raise
premiums 22% on home insurance for about a million customers if the
insurance giant could justify the hike at a public hearing.
State Farm, the state's largest insurer with roughly 1 million home
insurance policies in California, said the emergency rate would help the
company rebuild its capital following the Los Angeles wildfires that
destroyed more than 16,000 buildings, mostly homes. The company is
trying to prevent a “dire” financial situation that executives say could
force them to drop more California policies.
California Insurance Commissioner Ricardo Lara said other California
insurers won't be able to absorb State Farm's customers if the insurance
giant stops doing business in California, but that he wanted more data
on how the company manages its finances and calculates risks. He asked
the company to present its argument publicly on April 8 to a judge, who
will then give a proposed decision. Lara will then make a final
decision.
“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," Lara said in a statement. “The facts will be
revealed in an open, transparent hearing.”
An insurance crisis
The decision comes as California is undergoing a yearslong effort to
entice insurers to continue doing business in the state as wildfires
increasingly destroy entire neighborhoods. In 2023, several major
companies, including State Farm, stopped issuing residential policies
due to high fire risk. Lara last year unveiled a slate of regulations
all aiming at giving insurers more latitude to raise premiums in
exchange for more policies in high-risk areas. Those rules kick in this
year.
California approved double-digit rate increases for nine out of ten
largest insurers in California over the last few years, according to
Consumer Watchdog, an advocacy group that opposes State Farm's request
for higher premiums.
State Farm executives told state officials the company was already
struggling before the LA fires. The company received a financial rating
downgrade last year and has seen a decline of $5 billion in its surplus
account over the last decade. Last year, the company asked the state for
a 30% rate increase, which state officials are still considering.
The LA fires, which are now estimated to be the costliest natural
disasters in the U.S. history, have made things worse, State Farm
executives said. The company last month paid out roughly $1.75 billion
to 9,500 claims and estimated the total loss to reach more than $7
billion. Its surplus also dropped from $1.04 billion at the end of 2024
to $400 million after the fires, according to State Farm. The company is
using its surplus and reinsurance to settle the claims.
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An aerial view shows the devastation from the Palisades Fire on
beachfront homes Wednesday, Jan. 15, 2025 in Malibu, Calif. (AP
Photo/Jae C. Hong, File)
 Without the ability to quickly
rebuild its capital, banks and lenders could stop allowing State
Farm insurance as collateral for mortgages and require State Farm
policyholders to find coverage from different insurers, the company
has argued. If homeowners can’t find a replacement, they’ll be
forced on the FAIR Plan, which is designed as a temporary option to
provide minimum coverage for those without private insurance.
More Californians are relying on the FAIR Plan than ever despite
state regulator’s efforts to reduce the plan’s enrollment. The plan
also needed a $1 billion bailout last month to pay out fire claims.
State Farm, in a statement, called Lara’s decision a “step in the
right direction.”
“It’s time for certainty in the California insurance market for our
customers,” the company said.
Higher costs for policyholders
State Farm said it would halt cancelling and not renewing policies
for “at least one year” if it gets the rate increase approval,
according to Lara's office. The company last year announced it
discontinued coverage for 72,000 houses and apartments in California
after saying it would not issue new home policies in the state in
2023.
Homeowners with State Farm policies could pay up to $600 more in
premiums a year if the increase is approved, according to Consumer
Watchdog. The emergency rate request also includes a 38% for rental
owners and 15% for tenants.
Carmen Balber, the group's executive director, applauded Lara's call
for a public hearing.
“This is a win for consumers,” Balber said. “The company will have
to make its case before a judge, and the public will have a chance
to question the company and make its case as well.”
State Farm said it plans to refund the emergency rates if California
later approves lower rates through the company's request last year.
The insurer last received state approval for a 20% rate increase in
December 2023.
Lara’s decision also comes after State Farm Mutual, the parent
company, fired a top executive for saying the rate request was “kind
of” orchestrated in a video published by O’Keefe Media Group. State
Farm General, the California subsidiary, said in the same letter
this week that the person did not have any responsibilities in the
California’s operation and allegations that the company is
manipulating the public were “baseless.”
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