Insurance commissioner grants State Farm 17% emergency rate hike after L.A. fires
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Insurance Commissioner Ricardo Lara adopted an administrative law judge’s ruling Tuesday and granted State Farm General an emergency 17% hike in its homeowner rates.
The commissioner’s decision followed the release earlier in the day of a ruling by Judge Karl Frederic Seligman, who recommended that Lara adopt the rate increase pending the department’s consideration of a larger rate request the insurer sought last year due its weak financial condition.
“I expect State Farm provide the highest level of service to its California customers and to fulfill its promises,” Lara said in a statement. “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.”
The decision also would give State Farm interim rate hikes of 15% for its condo and renters insurance and 38% for its landlord rental-dwelling insurance. State Farm originally sought a 22% emergency rate hike for its homeowners coverage, but later reduced the request to 17%.
Insurers are seeking to charge California homeowners across the state for the costs of the catastrophic Los Angeles County fires they were burdened with when the state’s insurer of last resort needed a bailout.
In making the ruling, the judge said that California’s largest home insurer was already in a weakened financial state at the time of the Los Angeles wildfires — and that the emergency rate hike would carry it over until the state considers the prior rate request. Last year, State Farm sought premium increases of 30% for homeowners, 42% for renters and condo owners and 38% for landlords of rental dwellings.
“The proposed interim rate stipulation serves the best interests of California consumers and the public. Taken as a whole, it represents a fundamentally fair, adequate and necessary measure — effectively functioning as a rescue mission to stabilize State Farm’s financial condition while safeguarding policyholders,” Seligman wrote in his ruling released Tuesday.
Lara had the authority to revise, reject or accept the judge’s decision. The commissioner previously “provisionally” approved the rate hike, but then referred it to the judge for a recommendation.
Lara noted that as part of his decision that the company must receive an immediate $400 million cash infusion from its parent company, State Farm Mutual Automobile Insurance Co., to address its serious financial condition.
The company announced in March 2024 it would not be renewing about 72,000 property policies.
State Farm issued a brief statement Tuesday, saying, “Today’s emergency interim rate approval by the commissioner is a critical first step for State Farm General’s ability to continue serving our California customers. SFG still must continue building sufficient capital for the future.”
Lara’s decision is bound to be controversial amid unhappiness among many Palisades and Eaton fire victims over how State Farm has handled claims for properties that were damaged or destroyed. The commissioner also has faced criticism over his ties to the industry.
State Farm, the largest home insurer in California, continues to seek approval of a 22% emergency rate hike even as it faces complaints over its handling of insurance claims.
Last weekend, after listening to a barrage of complaints from homeowners during a community meeting, Lara said he was open to having his department conduct a “market conduct” exam into the insurer’s performance. He also was asked not to approve any rate hike for State Farm until an investigation was conducted.
“Hundreds of Palisades and Eaton fire survivors have reported illegal delays, denials, and underpayments by State Farm. We urge him to delay this rate hike for just a few months — enough time to investigate whether State Farm is meeting its legal obligations,” said Joy Chen, a leader of the Eaton Fire Survivors Network prior to Lara’s decision on Tuesday.
Lara said in his statement that he was focused on “ensuring that State Farm pays its claims to wildfire survivors fully and fairly – and nothing is off the table.”
In recommending approval of the interim rate hike, Seligman noted that State Farm’s surplus — or the amount of funds it had on hand to handle unexpected disaster claims — had declined $1.2 billion from 2022 to 2024, and was roughly $620 million after the fires.
He also said that consumers could receive refunds if a full hearing on the insurer’s rate hike request submitted last year — which could be held in October — determines the interim rate hikes were not warranted.
The company has previously said it will pay $7.6 billion to settle its Los Angeles-area fire claims but that a reinsurance agreement it has with its parent company State Farm Mutual will absorb the majority of its losses and lower them to about $612 million.
As of Monday, State Farm General said it had already paid more than $3.51 billion in Los Angeles wildfire claims, which totaled more than 12,692.
California Insurance Commissioner Ricardo Lara decided Friday to provisionally grant State Farm General’s request for a 22% hike in its homeowner insurance rates pending a formal rate hearing next month.
The company’s request for the emergency rate hike was opposed by Los Angeles advocacy group Consumer Watchdog, which participated in the hearing and urged Lara to reject the judge’s decision.
“Voter-approved Proposition 103 says a rate hike shouldn’t come before the rate justification, but that’s what happened here,” said executive director Carmen Balber. “Refunds will be too little too late for homeowners who are already struggling to pay their home insurance premiums.”
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