California insurance commissioner Lara questions State Farm on proposed rate hikes

By Isha Marathe

Feb 14 - (The Insurer) - California Insurance Commissioner Ricardo Lara told State Farm General that the company had not adequately shown why it needed emergency interim rate hikes on its policies, and has requested a meeting on 26 February with the insurer.

“Under the strict review laid out by Proposition 103, the burden is on State Farm to show why this is needed now. State Farm has not met its burden," Lara said in a letter on Friday.

On 3 February, State Farm General said in a letter to Lara that it was seeking interim rate increases effective from May 1 2025. It intends to raise rates by 22% for non-tenant homeowners, 15% for tenants (renters), 15% for tenants (condo unit owners), and 38% for rental dwelling.

The insurer cited losses from January's wildfires as the main impetus for the hikes, and said it current estimates losses of around $6.58 billion across 7,274 claims from the recent wildfires, The Insurer reported last week.

In his investigation concerning the need for an interim rate hike, Lara said he would ask State Farm why its financial position has deteriorated despite previous rate increases, and what other steps it has taken to restore stability.

"What has changed since State Farm’s last rate filings that now requires urgent relief?" Lara asked.

"How would granting this request affect policyholders, especially those who have already faced premium increases and non-renewals? … Has State Farm provided adequate documentation to justify its claims, and is it considering financial support from its parent company?" Lara asked.

He also asked Consumer Watchdog, the intervenor in the case, to appear at an in-person meeting alongside State Farm on 26 February.

State Farm General said in its letter that, although reinsurance will assist in in paying what it owes to customers on wildfire claims, the cost of the event would further deplete its capital and might lead to rating downgrades.

“If that were to happen, customers with a mortgage might not be able to use State Farm General insurance as collateral backing for their mortgage.

"With nearly three million policies in force, including more than one million homeowners customers, SFG needs your urgent assistance in the form of emergency interim approval of additional rate to help avert a dire situation for our customers and the insurance market in the state of California,” said the letter, whose signatories included State Farm president and CEO Dan Krause, The Insurer reported.

In his response, Lara said “All Californians know from the past 10 years that the risks of wildfire are real and growing. We have experienced first-hand the ravages of a changing climate. We are clear-eyed about the work needed to protect our communities. Our decisions must be guided by transparent data and an honest reckoning with the challenges we all face together. As the elected head of the department, my primary responsibility is to the people of California."

The CDI said that to date, insurers had disbursed $6.9 billion to southern California consumers affected by January wildfires through expedited and advanced payments, and $73 million for auto insurance claims related to the fires.

On Wednesday, Lara approved the California Fair Plan’s request for a $1 billion assessment from its member companies to help pay consumer claims from the southern California wildfires, The Insurer reported.