State Farm’s 22% rate increase gets tentative OK from California insurance chief

California Insurance Commissioner Ricardo Lara said he would approve State Farm’s emergency rate increase to offset claims from January’s firestorms in the Los Angeles area if the insurer can justify the hike with data at an April hearing.

In a statement issued Friday, March 14, Lara called on State Farm to halt non-renewals of homeowners’ insurance in California and pursue a $500 million capital infusion from its parent company in order to restore financial stability.

Also see: Why all California homeowners could be on the hook for LA County wildfire costs

Bloomington, Ill.-based State Farm Mutual Insurance Co., which is made up of several mutual companies in the U.S., insures more than 1.2 million policyholders for homeowners’ insurance through its State Farm General division in California.

“It’s time for certainty in the California insurance market for our customers,” said State Farm spokesman Sevag Sarkissian. “The provisional nature of today’s decision does not improve that certainty, but it’s a step in the right direction. We are moving forward with implementing this provisionally approved rate and will continue to work with the California Department of Insurance for a sustainable future for the California insurance market.”

More: State Farm executive fired after disparaging Los Angeles wildfires and victims

State Farm will begin billing existing clients with this new rate beginning May 1.

The advocacy group Consumer Watchdog said the 22% rate hike could equate to an additional $600 annually for homeowners across California.

Lara presented the proposal during a Tuesday, March 11, call with representatives from State Farm, the DOI and Consumer Watchdog.

Also see: California Insurance chief says he’s near ‘solution’ on State Farm rate hike

The commission chief confirmed in a transcript of the 17-minute conversation that his review of State Farm’s financial statements from 2023 and 2024 indicate “a concern regarding its surplus and a need to strengthen, especially, it’s risk-based capital ratio” — a financial yardstick used by regulators to measure the health of an institution.

Dan Krause, California’s president and CEO of State Farm General, confirmed on the call that he received approval from State Farm Mutual’s board of directors, who are willing “to consider capital support if our interim rate request is approved” and add $250 million until the short-term while the rate review is completed.

Also on the call, Lara said that California’s insurance market is facing significant challenges due to “climate catastrophes, rising global reinsurance cost, and a tightening national property insurance market.” He cited “potential trade and tariff wars that we are going to potentially enter into, which are only going to exacerbate the cost to rebuild and the cost for critical materials.”

Lara said that he wants State Farm to present evidence justifying the rate increase at a public hearing scheduled for April 8.

“To resolve this matter, I am ordering State Farm to respond to questions in an official hearing, promoting transparency and a path forward,” Lara said. “It is evident that other California insurers are unable to absorb State Farm’s existing customers, which poses a significant risk of these customers ending up on the FAIR Plan — a scenario we all wish to avoid.”

Also see: FAIR Plan gets 4,400 insurance claims from LA County wildfire victims

The FAIR Plan is a wildfire insurance of last resort for homeowners whose policies were terminated because their home is in a high-fire risk area.

“We will finally get to the bottom of State Farm’s financial condition. I am confident that my approach will provide Californians with greater choices in a competitive and stable insurance market — exactly what they deserve,” Lara said.

The insurer’s financial straits were discussed during a meeting Feb. 26 in Oakland between the insurance giant and Lara, who has been contemplating the hike since State Farm made the Feb. 3 request as it faces thousands of claims to cover property losses stemming from the firestorms. Related Articles

State Farm executives said at the meeting that it needs a 22% emergency rate hike in California to cover more than $7.9 billion in losses. Lara initially rejected the request, saying in a Friday, Feb. 14, letter to State Farm executives that he needed more information before he can approve an increase.

State Farm’s CFO Mark Schwamberger said the financial solvency of the California business has grown precarious following the L.A. fires.

“Currently, too many Californians live in fear of having their insurance policies non-renewed,” Lara said. “This anxiety perpetuates misinformation and discourages consumers from accessing their entitled benefits. This situation is unacceptable.”

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