In a significant move for homeowners in California, Insurance Commissioner Ricardo Lara announced today that he will grant State Farm a request to raise home insurance premiums by an average of 22%. This increase will only be approved if the insurance giant agrees to specific conditions and successfully navigates a public rate hearing scheduled for next month.
Commissioner Lara outlined several conditions that State Farm must meet to secure approval for this rate hike. As California's largest provider of homeowners insurance, State Farm is required to pause the cancellation and non-renewal of existing policies through the end of this year. Furthermore, State Farm's parent company, State Farm Mutual, is expected to provide a financial boost—either through a loan or direct funding—of $500 million to its California subsidiary, State Farm General. To justify the proposed interim rate increases, State Farm must also present updated and detailed financial data during the hearing on April 8.
In his statement, Commissioner Lara emphasized the importance of transparency, stating, "The facts will be revealed in an open, transparent hearing." He acknowledged the gravity of his decision, describing it as "unprecedented in the short term." Lara expressed his expectation that both State Farm and its parent company would fulfill their obligations without placing the financial burden solely on their customers.
The announcement was met with applause from Consumer Watchdog, an advocacy group that had previously challenged State Farm's rate requests and advocated for a public hearing. Executive Director Carmen Balber expressed satisfaction with the decision, stating that it represents "a victory for consumers" as it requires State Farm to justify its rate hike in front of an administrative law judge.
In response to the announcement, State Farm spokesperson Sevag Sarkissian commented that the company is eager for "certainty in the California insurance market" for its customers. While he acknowledged the provisional nature of the decision, he noted it represents progress. However, he did not clarify what implementing the "provisionally approved rate" would entail or when it would take effect.
The push for these emergency rate increases comes after severe wildfires ravaged parts of Los Angeles County in January, leading State Farm to anticipate over $7 billion in claims. The company has cited a drastically reduced surplus and a potential downgrade in its credit rating, which could affect their ability to meet insurance requirements for mortgage lenders. Currently, State Farm insures nearly 3 million property owners in California, including over 1 million homeowners.
Under California law, any insurance company requesting rate increases of 7% or more must undergo a rate hearing if there are objections from intervenors, such as in State Farm's case. Rate hearings are uncommon; the last one occurred in 2015 involving State Farm. If State Farm can successfully demonstrate its need for the rate hikes at the upcoming hearing, the new rates will take effect on June 1, resulting in an average increase of 22% for homeowners, 15% for renters and condos, and 38% for rental dwellings. Notably, these increases follow an average 20% premium rate hike that State Farm customers experienced just last year.
Following the upcoming public hearing, an administrative law judge will oversee the proceedings at the Department's Oakland office and is expected to provide a proposed decision to Commissioner Lara within ten days. This decision will be crucial in determining the future of home insurance rates in California.
This story is still developing, and updates will be provided as more information becomes available.
