California Insurance Commissioner Ricardo Lara has provisionally approved a 22% interim rate hike for State Farm, the largest homeowners insurer in the state. This decision comes as the California Department of Insurance announced that the increase will be valid only if State Farm can provide solid evidence to support the hike during a public hearing set for April 8.
Before this approval, there was a heated back-and-forth between State Farm executives and Consumer Watchdog, a consumer advocacy group, as they argued their positions in letters to Lara. Earlier in February, Lara had declined State Farm’s rate request, seeking clarity on the company’s financial health amid ongoing discussions.
State Farm has cited the recent devastating wildfires in Los Angeles as a key reason for the rate increase. As of mid-February, the insurer reported around 11,400 claims related to home and auto losses, paying out over $1.35 billion. The wildfires have been particularly costly, with insurance companies collectively covering more than $12 billion in losses from the two major fires that struck the region in January.
The proposed rate increases, effective May 1, would raise homeowners’ rates by 22%, renters’ rates by 15%, and rental dwelling rates by a staggering 38%. Despite these increases, State Farm has ceased writing new policies in California and has non-renewed thousands of existing ones.
State Farm argues that the rate hike is necessary to align its costs with the risks it faces and to rebuild its capital. The company has reported significant losses, stating that over the past nine years, it has spent $1.26 for every dollar collected in premiums, resulting in more than $5 billion in cumulative underwriting losses.
In a recent meeting, Lara urged State Farm to stop non-renewing policies and seek a $500 million capital boost from its parent company to stabilize its finances. He expressed concern that other insurers in California are not in a position to absorb State Farm’s current customers, which could push them into the FAIR Plan, a last-resort insurance option.
Consumer Watchdog welcomed the provisional approval but emphasized that it is not a final decision. They noted that the upcoming hearing will allow State Farm to justify its request, and they expect the judge to carefully evaluate the company’s claims.
As the situation unfolds, State Farm remains the largest homeowners insurer in California, followed by Farmers Insurance Group, Liberty Mutual, and several others. The outcome of the April hearing could have significant implications for both the company and its policyholders.