Hearings begin on State Farm’s home insurance price hike. Here’s what’s been said

An attorney for the California Department of Insurance issued a stark warning Tuesday during a hearing about a decision that will affect the prices of more than a million homeowner polices across the state.

“We’re on the Titanic, and we see the iceberg,” Nikki McKennedy told an administrative law judge. “There is still time, your honor, to turn this ship around.”

But, if that doesn’t happen, the rate enforcement attorney said millions of Californians were going to go into the water.

“And there are not enough lifeboats.”

Those comments came during opening arguments in the first day of a highly unusual public hearing about a request by State Farm’s California operation for an emergency rate increase.

State Farm General Insurance Co. said it needs the jolt of money to buoy its finances following years of losses and the fires that ravaged the Los Angeles area in January.

The request by one of the state’s largest providers of homeowners coverage comes as other major companies have paused and cut business in recent years due to frustrations with state law, concerns about inflation and growing wildfire risks.

State Farm on Feb. 3 asked Insurance Commissioner Ricardo Lara to allow it to urgently raise its prices by an average of almost 22% for homeowners policies. But attorneys for State Farm and the insurance department said Tuesday the company is now only asking for a 17% hike. And that, if approved, it would also receive $400 million in aid from its parent company.

The emergency rate was “fundamentally fair, adequate and reasonable,” Katie Wellington, an attorney representing State Farm, said during an opening statement. “And it is in the interest of justice because it will help prevent” a downgrade of the company’s credit rating, which could lead to insurance issues for policyholders.

Those details didn’t satisfy attorneys for Consumer Watchdog, an advocacy organization challenging the request.

“When you push past the rhetoric that we’re hearing, the evidence coming from State Farm and the department falls short,” William Pletcher said during an opening statement. The attorney urged Administrative Law Judge Karl-Fredric Seligman to not support “a bailout for bad business decisions.”

Wellington said the money the company has to pay claims has dropped from about $4 billion a decade ago to roughly $1 billion in 2024. Losses from the Los Angeles fires were expected to bring that reserve even lower.

In 2023, it wrote one-fifth of all homeowner coverage, according to the most recent state data, the largest share of any company in the state. But it has stopped accepting new homeowner business and slashed its policies statewide since that year.

In June, State Farm asked the department to raise its prices for home policies by an average of 30%. Under California law, companies must have rate increases for home, auto and other policies approved before they go into effect.

That request was pending when State Farm made the emergency request, and it remains unresolved.

Last month, Lara said he would approve State Farm’s emergency hike if the company successfully made its case during the hearing and that the increase would go into effect June 1.

Seligman is expected to provide Lara with a proposed decision within 10 days after the hearing is complete, which the commissioner can adopt, amend or reject.

The hearing is being held in Oakland and was set to continue Wednesday morning.

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