State Farm General has decided to lower its proposed rate increase for homeowners insurance in California. Initially, they sought a 21.8% hike, but after discussions during a hearing with the California Department of Insurance (CDI), they have agreed to reduce it to 17%. This decision comes as part of a broader effort to address the financial struggles faced by the state’s largest homeowners insurer.
To support this change, State Farm’s parent company will contribute $500 million in capital to help stabilize the subsidiary. During the hearing, CDI attorney Nikki McKennedy urged Administrative Law Judge Karl-Fredric Seligman to approve the new rates, emphasizing the potential disruption to policyholders’ coverage if the company could not secure the necessary funds.
David Appel, an economist who advises State Farm, warned that rejecting the rate increase could jeopardize the company’s ability to operate in California. He suggested allowing the interim increase while planning a full hearing to assess if the change is justified.
Consumer advocacy group Consumer Watchdog expressed concerns about the rate hike. Legal Director Will Pletcher argued that California’s regulations do not support rate increases based solely on a company’s financial health. He pointed out that the largest insurer in the state should not be rewarded with higher rates if it fails to comply with regulatory standards.
Last month, Insurance Commissioner Ricardo Lara had approved an earlier request from State Farm General for a rate increase, which had been set at 38% at one point, contingent upon the capital contribution from the parent company. The insurer also agreed to pause non-renewals of certain homeowners policies to ease the situation for its customers.
State Farm executives, including CEO Dan Krause, have highlighted the need for additional capital to maintain their operations in California. They have voiced their concerns to CDI officials and consumer advocates, indicating that financial support is crucial for the company’s stability.
Judge Seligman is expected to make a recommendation to Commissioner Lara within the next ten days. If approved, the new interim rate will take effect on June 1. The outcome of this decision will be closely watched, as it will impact many homeowners in California who rely on State Farm for insurance coverage.