California's insurance commissioner approves State Farm's emergency rate increase

By Isha Marathe

May 13 - (The Insurer) - State Farm General has been approved for an interim emergency rate increase in California, granting it a $400 million capital infusion from its parent company, ordered by an administrative law judge and approved by state insurance commissioner Ricardo Lara on Tuesday.

The company is precluded from issuing any new block non-renewals in the state through the end of 2025.

The insurer can start increasing homeowners and other rates beginning June 1.

Pending the complete hearing, the order approves a 17% interim rate increase for State Farm’s homeowners line, reduced from the 21.8% the company had requested in February.

"I expect State Farm (to) provide the highest level of service to its California customers and to fulfill its promises. State Farm must now justify its financial condition and detail its recovery plan in a full rate hearing before a neutral judge and my Department’s experts," Lara said.

"I am focused on ensuring that State Farm pays its claims to wildfire survivors fully and fairly – and nothing is off the table.”

The rate increase comes after a late-February meeting at the Department of Insurance’s Oakland office, where State Farm told Lara that it could cover claims from the Southern California wildfires but warned that the disaster had further strained its financial condition.

At the time, Lara pressed the state's largest home insurer for a concrete plan to stabilize its finances while maintaining coverage for its more than 1 million California homeowner customers.

State Farm had first requested the emergency rate hike on February 3, asking for increases of 21.8% for non-tenant homeowners, 15% for tenants (renters), 15% for tenants (condominium unit owners) and 38% for rental dwellings.

Lara provisionally approved State Farm's request in March, urging State Farm to seek a $500 million capital infusion from its parent company for immediate relief.

After conducting a three-day hearing from April 8 to April 10, administrative law judge Karl Fredric Seligman found that “the evidence presented in the hearing established a prima facie showing that State Farm is experiencing extraordinary financial distress, coupled with surplus depletion that threatens ongoing business operations.”

Consumer Watchdog executive director Carmen Balber was critical of the court order, and urged Lara to reject it.

"(The) decision that would make consumers pay now but allow State Farm to wait months before having to show its math is a great disappointment for consumers. Voter-approved Proposition 103 says a rate hike shouldn't come before the rate justification, but that's what happened here," Balber said.

"We urge the Commissioner to reject the proposed decision so State Farm policyholders, many of whom are struggling to get their claims paid by the company after the Los Angeles fires, aren't overcharged."

The current rate hikes are temporary and subject full rate hearing scheduled to start at a date to be determined by the court.

State Farm General did not immediately respond to a request for comment.