Big Homeowner Rate Hike From State Farm Shot Down by California Regulator
This article was originally published Feb. 14, 2025 on calmatters.org.
California Insurance Commissioner Ricardo Lara today rejected State Farm’s request for “emergency” rate increases, setting up what could be a highly consequential showdown with the state’s biggest insurer — and going against the recommendation of his staff experts.
Lara, who has been urging insurance companies to write policies in the state again despite increasing wildfire risks, says in a letter to State Farm executives that he needs more information before he can approve an increase. He asks them to appear before him in person on Feb. 26 at the Insurance Department’s office in Oakland to answer his questions at an “informal conference.”
“The burden is on State Farm to demonstrate that interim relief is warranted under the circumstances,” the commissioner says in his letter. “My goal is to make sure policyholders do not have to pay more than is required. In light of the recent Los Angeles wildfires, State Farm’s customers need real answers about why they are being asked to pay more and what responsibility the company’s leadership is taking to get its financial house in order.”
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State Farm said in a written statement today that it “must seriously consider its options within the California insurance market going forward.”
“We are very disappointed the Commissioner ignored his department’s recommendation to take the critical and necessary step to approve State Farm General’s request for interim rate increases,” the statement said, adding that the company has “gone to great lengths” to answer the questions the commissioner asked in his letter.
When CalMatters asked State Farm whether it plans to be present at Lara’s meeting, spokesperson Steve Baldwin said in an email: “We are aware of the Commissioner’s letter and upcoming meeting and have nothing additional to add at this time.”
The company last week asked for interim rate increases averaging 22% for homeowners, 15% for renters and 38% for condominium owners, saying it had already paid out $1 billion in claims from the Los Angeles County fires so far and expected to “pay out significantly more.” It wanted to be able to raise premiums starting in May.
Before making the interim request, State Farm had been waiting for the Insurance Department to approve its rate increase requests from last year.
Lara acknowledged in the letter that his staff recommended last week that he approve the company’s request, but said “my primary responsibility is to the people of California.”
In his letter, among the things Lara asks for are an explanation of what has changed between State Farm’s request last summer and now; what else the company is doing to improve its financial situation besides raising rates; and whether State Farm’s parent company would be able to step in to help. The commissioner also asks how granting the company its request would affect its 2023 decision to continue not writing new policies in California, which was followed by its decision last year not to renew the policies of tens of thousands of customers in the state.
Lara mentions in the letter that with his department’s approval, the company received rate increases of 6.9%, 6.9% and 20% in 2022, 2023 and 2024, respectively. “In the absence of non-wildfire catastrophic losses in 2022 and 2023, how does State Farm explain the significant decrease in its policyholder surplus?” he asks.
Dan Krause, chief executive of State Farm General, the California arm of State Farm Group, said in a letter to Lara dated Feb. 3 that the company has nearly 3 million policies in the state, including 1 million homeowner policies. He asked for the commissioner to bypass the usual hearings, which are required by state law when an insurer requests rate increases above 7% and the increases have been challenged by an intervenor. Krause wrote that “there is simply too much at stake for SFG’s customers and the broader market if any rate increase has to wait on a full hearing or other resolution in the normal course.”
In the insurance department’s recommendation for approving the rate increases sought by State Farm, the staff noted that the proposed agreement would have been subject to refunds promised by the company if the department eventually approves rates lower than the interim rates.
