California regulators “provisionally” approve State Farm’s steep homeowner rate hike

California insurance regulators have “provisionally” approved State Farm’s request for a steep rate hike for homeowners following the devasting Los Angeles wildfires.

On Friday, Insurance Commissioner Ricardo Lara signaled he is willing to allow State Farm to raise homeowner rates by an average of 22%. He also granted the state’s largest insurer initial approval to increase premiums by 15% for renters and condo owners and 33% for rental owners.

REALTED: Why were these Bay Area communities left off map of fire-risk areas where insurers must expand coverage?

However, Lara said the “emergency interim” rate hikes can only go through if the company provides more information to justify the increases in a public hearing scheduled for April 8.

The insurer’s California-only subsidiary, State Farm General, says the hikes 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 the subsidiary has the money to cover the staggering damage but must raise rates to shore up its shaky financial health.

“State Farm claims it is committed to its California customers and aims to restore financial stability,” Lara said in a statement. “I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers.”

It’s unclear how much premiums could go up 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 customers.

Lara also called on State Farm General to stop canceling coverage for homeowners in fire-risk areas and to ask its parent company for $500 million to stabilize its financial situation. The commissioner could still approve the rate hikes even if the insurer doesn’t commit to those steps.

State Farm cautiously welcomed Lara’s decision but did not respond directly to his requests.

“It’s time for certainty in the California insurance market for our customers,” the company said in a statement. “The provisional nature of today’s decision does not improve that certainty but it’s a step in the right direction.”

The approval follows a meeting Lara held with State Farm executives last month in Oakland to press them on their claims that the company’s California subsidiary is in financial straits.

Even before the multibillion-dollar blazes earlier this year, State Farm General had issued multiple warnings about its solvency. The provider 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. S&P Global Ratings recently threatened to downgrade the insurer’s credit rating, signaling concerns about its financial strength.

Still, Santa Moncia-based Consumer Watchdog, an advocacy group that filed a challenge with the insurance department to State Farm’s rate hike request, has remained vocal that the increases are unwarranted. It called Lara’s decision to move forward with a public hearing before deciding whether to issue a final approval a “victory” for policyholders.

“The company has so far failed to back up its request, and unless State Farm proves otherwise the outcome of a hearing should be a rejection,” the group said in a statement.

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 financial outlook. With the June request still pending, the insurer asked regulators to approve the emergency “interim” hike after the fires in Southern California.

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 in recent years amid unprecedented wildfire losses.

California’s insurance rates are closely regulated and, as a result, lower than in many other parts of the country. The insurance industry argues that’s left them in an untenable situation, even as companies have won approval for repeated rate hikes in recent years.

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.

Consumer advocates, however, claim the plan will lead to huge rate increases and lacks the teeth to force insurers to add homeowners.

In the greater Bay Area, insurers who opt into the plan will be expected 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 suburban areas such as the East Bay Hills and Los Gatos.

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