California insurance regulators urge State Farm to expand coverage in exchange for rate hikes

After meeting with State Farm executives in Oakland on Wednesday, California’s top insurance regulator said he expects to decide within two weeks whether to approve the insurer’s emergency request for a steep rate hike while also promising to press company officials for guarantees of expanded coverage should it be allowed to charge higher premiums.

Earlier this month, State Farm — the state’s largest home insurance provider — asked the California Department of Insurance to approve statewide rate increases averaging 22% for homeowners. It also requested a 15% increase for renters and condo owners and a 33% hike for rental owners.

The insurer’s California-only subsidiary, State Farm General, says the increases are necessary to pay out future claims after it expects to cover $7.6 billion in estimated losses from the devastating Los Angeles wildfires. The company said it can cover the staggering damage but will need to raise rates to shore up its shaky financial health.

If approved, it’s unclear how much premiums could increase in the Bay Area or which parts of the region would see the largest rate hikes. Statewide, the insurer covers roughly 15% of homes, totaling more than 1 million homeowner customers.

After the meeting at the insurance department’s offices in Oakland, state Insurance Commissioner Ricardo Lara said he would continue to push State Farm for more details about its finances and for commitments to continue doing business in the state. In recent years, the company has ended coverage for tens of thousands of California homeowners and paused writing new policies anywhere in the fire-ravaged state, even as it won approval for new rate increases.

“I want to know that if State Farm consumers are going to be asked to pay more, that we get some guarantees that (State Farm officials) are going to continue to grow their footprint and stay in California,” Lara said.

In a brief statement, State Farm said the meeting was an “opportunity to reiterate” to the commissioner the “urgency needed” to approve the increases. The company did not immediately provide a response to Lara’s calls for guarantees to expand coverage.

While Lara said he hopes to come quickly to a rate decision — which could allow for smaller-than-requested increases — he declined to commit to a two-week timeline. He offered few specifics about what was discussed in the meeting or any new information the company presented.

Lara did say, however, that he pressed the company executives over whether State Farm General’s parent corporation, State Farm Mutual Automobile Insurance Company, would step in and ensure its subsidiary remains solvent — though Lara did not provide a definitive answer Wednesday.

Even before the multibillion-dollar blazes last month, State Farm General had issued multiple warnings about its solvency. The company said once it pays out claims from the Los Angeles fires, it expects its cash surplus to drop from $1.04 billion at the end of 2024 to $600 million. On Tuesday, S&P Global Ratings threatened to downgrade the insurer’s credit rating, signaling concerns about its financial strength.

Even so, Los Angeles-based Consumer Watchdog, an advocacy group that has filed a challenge to the rate requests with the insurance department and also took part in the private meeting, said State Farm has failed to prove the hikes are warranted.

“State Farm is demanding a backroom bailout from California homeowners while concealing critical financial details,” said William Pletcher, litigation director at Consumer Watchdog.

Lara said the insurance department would release a transcript of the meeting by Thursday.

State Farm’s latest plea to regulators followed a 30% rate hike request in June. At the time, the company asked the insurance department to grant a “variance” to raise premiums higher than usual due to its uncertain financial outlook. With the June request still pending, the insurer asked regulators to approve the emergency “interim” hike after the fires.

Wednesday’s meeting was just the latest chapter in the state’s insurance crisis, as providers have ended coverage for hundreds of thousands of policyholders across the state following recent destructive wildfire seasons.

In an attempt to stabilize the faltering home insurance market, state regulators earlier this year finalized a plan that includes allowing insurers to raise rates based on the growing threat of climate change — long an industry demand — in exchange for expanding coverage in parts of the state with the greatest wildfire risk.

In the greater Bay Area, insurers who opt into the plan will be required to write more policies in Marin, Napa and Santa Cruz counties, as well as parts of San Mateo and Sonoma counties and a sliver of Santa Clara County. Insurers would also have to offer new policies for fire-risk homes in more urban areas such as the Oakland Hills and Los Gatos.

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