State Farm seeks to boost California home insurance rate hike to 30%

Ethan Varian, Bay Area News GroupSan Jose Mercury News

A week after winning emergency approval to raise Californians’ home insurance premiums, State Farm is seeking to boost that rate hike even higher to 30%.

On May 13, the state’s largest insurance company got the OK from regulators to increase rates by an average of 17% starting next month. State Farm secured the expedited rate hike after asserting it was in financial distress and expected $7.6 billion in claims arising from the deadly Los Angeles wildfires in January.

The “interim” rate increase, however, was only part of a 30% hike the company asked for in June 2024. To reach the full amount, State Farm filed a request Monday for an 11% increase starting next year, on top of the already approved 17% increase. Since the hikes would happen sequentially, they would have the effect of raising rates by 30%.

State Farm is also requesting to raise rates by 36% for condos and 52% for renters.

The California Department of Insurance said it will hold a public hearing in October to continue gathering information from company officials as they seek to justify the requests.

“State Farm wanting a rate increase doesn’t change the law,” the agency said in a statement. “All rates must be justified so consumers don’t pay more than is required.”

It’s unclear exactly 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.

When State Farm made its initial 30% request last June, the company asked the insurance department to grant a “variance” to raise premiums higher than usual due to its financial outlook. State Farm General, the company’s California-only subsidiary, had issued multiple warnings about its solvency. S&P Global Ratings recently threatened to downgrade the insurer’s credit rating, signaling concerns about its financial strength.

With the June request still pending, the insurer asked regulators to approve the emergency hike after the devastating fires in Los Angeles County. At the recommendation of an administrative judge, Insurance Commissioner Ricardo Lara last week authorized the 17% hike, slightly less than the 22% the company had requested.

In a statement, State Farm said it was “pleased” with Lara’s decision but made clear it would continue pursuing the full 30% increase.

Consumer advocates, however, said regulators should not have agreed to approve the expedited rate hike — the first time an insurer won such approval in California. They called on the insurance department to closely scrutinize the data that State Farm is now providing to justify another increase.

“We’ve already heard from consumers who are outraged that they just got 17% and now they’re asking for more,” said Carmen Balber, executive director of Los Angeles-based Consumer Watchdog.

State Farm’s latest request is the most recent chapter in California’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 has left insurers 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, contend 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.