Big homeowner rate hike from State Farm shot down by California regulator

California Insurance Commissioner Ricardo Lara today rejected State Farm's request for "emergency" rate increases, setting up what could be a highly consequential showdown with the state's biggest insurer — and going against the recommendation of his staff experts.

Lara, who has been urging insurance companies to write policies in the state again despite increasing wildfire risks, says in a letter to State Farm executives that he needs more information before he can approve an increase. He asks them to appear before him in person on Feb. 26 at the Insurance Department's office in Oakland to answer his questions at an "informal conference."

"The burden is on State Farm to demonstrate that interim relief is warranted under the circumstances," the commissioner says in his letter. "My goal is to make sure policyholders do not have to pay more than is required. In light of the recent Los Angeles wildfires, State Farm's customers need real answers about why they are being asked to pay more and what responsibility the company's leadership is taking to get its financial house in order."

State Farm said in a written statement today that it "must seriously consider its options within the California insurance market going forward."

"We are very disappointed the Commissioner ignored his department's recommendation to take the critical and necessary step to approve State Farm General's request for interim rate increases," the statement said, adding that the company has "gone to great lengths" to answer the questions the commissioner asked in his letter.

When CalMatters asked State Farm whether it plans to be present at Lara's meeting, spokesperson Steve Baldwin said in an email: "We are aware of the Commissioner's letter and upcoming meeting and have nothing additional to add at this time."

The company last week asked for interim rate increases averaging 22% for homeowners, 15% for renters and 38% for condominium owners, saying it had already paid out $1 billion in claims from the Los Angeles County fires so far and expected to "pay out significantly more." It wanted to be able to raise premiums starting in May.

Before making the interim request, State Farm had been waiting for the Insurance Department to approve its rate increase requests from last year.

Lara acknowledged in the letter that his staff recommended last week that he approve the company's request, but said "my primary responsibility is to the people of California."

In his letter, among the things Lara asks for are an explanation of what has changed between State Farm's request last summer and now; what else the company is doing to improve its financial situation besides raising rates; and whether State Farm's parent company would be able to step in to help. The commissioner also asks how granting the company its request would affect its 2023 decision to continue not writing new policies in California, which was followed by its decision last year not to renew the policies of tens of thousands of customers in the state.

Lara mentions in the letter that with his department's approval, the company received rate increases of 6.9%, 6.9% and 20% in 2022, 2023 and 2024, respectively. "In the absence of non-wildfire catastrophic losses in 2022 and 2023, how does State Farm explain the significant decrease in its policyholder surplus?" he asks.

Dan Krause, chief executive of State Farm General, the California arm of State Farm Group, said in a letter to Lara dated Feb. 3 that the company has nearly 3 million policies in the state, including 1 million homeowner policies. He asked for the commissioner to bypass the usual hearings, which are required by state law when an insurer requests rate increases above 7% and the increases have been challenged by an intervenor. Krause wrote that "there is simply too much at stake for SFG's customers and the broader market if any rate increase has to wait on a full hearing or other resolution in the normal course."

In the insurance department's recommendation for approving the rate increases sought by State Farm, the staff noted that the proposed agreement would have been subject to refunds promised by the company if the department eventually approves rates lower than the interim rates.

The meeting at which Lara is asking State Farm executives to appear in person will also include Consumer Watchdog, the group that intervened last year when the company filed its rate requests.

Consumer Watchdog last week urged the commissioner to reject State Farm's request for the interim rate increases. In a press release, the group accused the company of "misleading policyholders into believing its financial condition is at risk."

The consumer advocacy group had a mixed reaction to the commissioner's action, saying he needs to follow the law and hold a public rate hearing.

"The Commissioner is right to call for more scrutiny of State Farm, which has so far stonewalled information requests," said Pam Pressley, an attorney for the group, in a press release today. "However, the outstanding issues need to be raised and answered in a formal hearing, which Consumer Watchdog has called for, where there is formal discovery and due process rights."

Still, the group plans to attend Lara's meeting on Feb. 26, Consumer Watchdog President Jamie Court told CalMatters today. "We will take every opportunity we can to make our case even if we disagree with the process," he said.

Michael Soller, insurance department spokesperson, said a public rate hearing is necessary "only when the parties involved do not reach a settlement," and that Consumer Watchdog participates in these private discussions whenever it intervenes in a rate review.

Joel Laucher, a former chief deputy commissioner at the insurance department who is now a program specialist at consumer advocacy group United Policyholders, told CalMatters "hopefully, this is not a case of 'brinkmanship' by any of the parties involved."

"We don't want to contemplate the possibility that State Farm will exit the California market — that would create a significant void in the availability of homeowners coverage," Laucher said, noting that State Farm had about 20% of the state's market at the end of 2023.

Laucher also said "it may be in State Farm's best interest to accept a 6.9% increase," which is under 7% and would avoid the intervenor process and possible hearing under state law, "then immediately apply for another increase."

Property owners in California have struggled with insurance availability and affordability in the past few years as companies have either stopped renewing policies or writing new ones, citing wildfire risk and inflation. Many homeowners have had to turn to the FAIR Plan, a coverage pool, funded by insurance companies operating in California, that's required by law to provide fire insurance to those who can't otherwise find it.

This week, Lara approved a $1 billion lifeline sought by the FAIR Plan, which said it risked running out of money to operate as it pays out claims for the Los Angeles-area fires. Its member companies will be responsible for that amount, and are expected to take advantage of their new ability to try to recoup half of that money from their customers by charging them a one-time fee.

Last year, the commissioner rolled out a multi-part effort to address insurance availability in the state. It took effect at the beginning of 2025, right before the L.A.-area fires.