California regulator mulls State Farm's request for 22% premium hike for homeowners after LA fires

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.

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.”