Napa, CA – California’s Insurance Commissioner, Ricardo Lara, has provisionally approved a significant request from State Farm to raise homeowners’ insurance premiums by an average of 22%. The rate increase, which could impact millions of policyholders across the state, comes in response to the financial challenges faced by the insurance giant following a series of catastrophic wildfires in Southern California.
In a statement issued Friday, Lara explained that the increase would be contingent upon State Farm’s ability to justify the hike at a public hearing next month, where the company must meet a series of stringent conditions. While acknowledging the financial difficulties of State Farm, Lara emphasized that the company must also demonstrate accountability, rather than shifting the entire burden onto consumers.
“State Farm claims it is committed to its California customers and aims to restore financial stability,” Lara said. “I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers. The facts will be revealed in an open, transparent hearing.”
In addition to the proposed rate hikes, Lara’s provisional approval also includes a directive for State Farm to halt any cancellations or non-renewals of policies until the end of the year. This decision aims to alleviate the growing anxiety among Californians, who have expressed fears about losing coverage, especially in the wake of the state’s persistent wildfire seasons.
Lara further urged State Farm’s parent company, State Farm Mutual, to provide $500 million in financial support to bolster the insurer’s standing in California.
State Farm has claimed that the devastating wildfires in Southern California have severely impacted its financial situation, prompting the request for the emergency rate hikes. The company also noted that the increased costs from claims related to these wildfires have added significant pressure to its operations in the state.
Under California law, any insurance rate increase exceeding 7% requires a formal hearing, as stipulated by Proposition 103. Such rate hikes are rare, with the last hearing involving State Farm occurring in 2015. However, experts suggest that approval of the rate hikes may be inevitable if State Farm can make its case at the public hearing.
If approved, the rate hikes would affect different policyholders in various ways. Homeowners would see an average increase of 21.8%, while renters and condominium unit owners would face a 15% increase. Rental dwellings could experience the largest hike, with premiums set to rise by 38%.
Despite the urgency of the situation, consumer advocacy groups have voiced concerns over the proposed hikes. Consumer Watchdog, a prominent advocacy organization, filed a challenge against State Farm’s request, accusing the company of using policy cancellations as leverage to pressure regulators into approving the rate hikes.
The group pointed to a secretly recorded conversation involving State Farm executive Haden Kirkpatrick, where he appeared to suggest that the company was strategically using policy cancellations as a bargaining tool. The recording, which went public, led to Kirkpatrick’s firing and raised questions about State Farm’s transparency and good faith in its dealings with regulators and customers.
“These remarks strongly suggest that policy cancellations are being wielded as a strategic bargaining tool rather than as a necessary response to financial risk,” said Will Pletcher, Litigation Director at Consumer Watchdog. “This contradicts the impression State Farm sought to convey at the meeting — that it would remain in the market if rate relief were granted, and calls into question the transparency and good faith of State Farm’s dealings with both regulators and policyholders.”
Despite these objections, Consumer Watchdog praised Lara’s decision to enforce conditions on the rate hikes and require a public hearing, ensuring a measure of transparency in the process.
“It’s a victory for consumers that State Farm will have to make its case in a public hearing before an [administrative law judge], and the judge will decide if a rate hike is justified,” said Carmen Balber, Executive Director of Consumer Watchdog.
The upcoming public hearing will give stakeholders an opportunity to present evidence and voice their concerns before a final decision is made on whether the requested rate hikes will be implemented. The outcome of this hearing could set a precedent for future insurance rate decisions in California, a state that has faced increasing insurance challenges due to its growing exposure to wildfires and other natural disasters.