(Image Credit: IMAGN) A burned home destroyed by the Eaton Fire that started on Jan. 7 in Altadena.
Sacramento, California – California Insurance Commissioner Ricardo Lara announced Friday that he will hold a public hearing on State Farm’s emergency request to raise home insurance premiums by 22% for approximately one million customers. This decision follows State Farm’s claim that the increase is necessary to rebuild its capital after the devastating Los Angeles wildfires.
State Farm, California’s largest home insurer, argues that the emergency rate hike is crucial to prevent a “dire” financial situation that could force homeowners into the state’s last-resort insurance option. The company contends that the LA wildfires, which destroyed over 16,000 buildings, primarily homes, have severely impacted its financial stability.
Commissioner Lara, while acknowledging the potential consequences of State Farm ceasing operations in California, emphasized the need for transparency and data-driven decision-making. He stated that other California insurers would be unable to absorb State Farm’s massive client base. “State Farm claims it is committed to its California customers and aims to restore financial stability. I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers,” Lara said. “The facts will be revealed in an open, transparent hearing.”
The public hearing, scheduled for April 8, will allow State Farm to present its case before a judge, who will then provide a proposed decision. Lara will subsequently make the final determination. In a private meeting earlier this week, Lara also urged State Farm to request a $500 million capital infusion from its parent company to bolster its finances.
In exchange for the rate increase approval, State Farm has committed to halting policy cancellations and non-renewals for “at least one year.” This pledge follows the company’s 2023 decision to discontinue coverage for 72,000 California properties and its announcement that it would cease issuing new home policies in the state.
Consumer Watchdog, an advocacy group opposing the rate hike, estimates that the 22% increase could cost homeowners an additional $600 annually. They have also threatened to challenge the approval if Lara proceeds with it.
The proposed emergency rates include a 22% increase for homeowners, 38% for rental owners, and 15% for tenants, and are set to take effect in June if approved. State Farm has also stated that it plans to refund the emergency rates if the state later approves lower rates through its previously submitted 30% rate increase request, which is still under consideration.
The company’s financial struggles predate the LA wildfires, with a financial rating downgrade and a $5 billion decline in its surplus account over the past decade. State Farm executives reported that the LA fires resulted in approximately $1.75 billion in payouts for 9,500 claims, with estimated total losses exceeding $7 billion. The company’s surplus dropped from $1.04 billion to $400 million after the fires.
This decision comes amidst California’s ongoing efforts to stabilize its insurance market, which has been significantly impacted by increasing wildfire risks. New regulations aimed at providing insurers more flexibility in raising premiums in exchange for increased coverage in high-risk areas are set to take effect this year.
