Insurance commissioner wants meeting with State Farm on rate hike

California Insurance Commissioner Ricardo Lara on Friday asked for a meeting with State Farm for a more detailed explanation of why the company has requested Lara’s approval for an emergency 22% rate hike on homeowner policies.

In a letter to California’s largest insurer, Lara said state law requires State Farm to detail the reasons for the proposed rate hike.

“Under the strict review laid out by Proposition 103, the burden is on State Farm to show why this is needed now,” Lara wrote. “State Farm has not met its burden.”

Lara scheduled a meeting Feb. 26 in Oakland with Insurance Department officials, the case’s intervenor Consumer Watchdog and State Farm representatives. According to Lara’s office, the meeting will focus on:

• “State Farm’s financial stability: Why has the company’s financial position deteriorated despite previous rate increases, and what other steps—beyond raising rates—has the company taken to restore stability?
• “Justification for the emergency rate increase: What has changed since State Farm’s last rate filings that now requires urgent relief?
• “Consumer impact: How would granting this request affect policyholders, especially those who have already faced premium increases and non-renewals?
• “Transparency in decision-making: Has State Farm provided adequate documentation to justify its claims, and is it considering financial support from its parent company?”

On Feb. 3, the company announced it received more than 8,700 claims and paid out over $1 billion.

“We know we will ultimately pay out significantly more, as these fires will collectively be the costliest in the history of the company,” State Farm President/CEO Dan Krause and other company executives wrote in a letter to Lara. “Although reinsurance will assist us in paying what we owe to customers, the costs of these fires will further deplete capital from (State Farm).”

The company requested immediate approval of interim rate increases effective May 1 totaling 22% for homeowners, 15% for renters and 38% for rental dwellings.

State Farm announced in May 2023 that it would not issue new policies in California, and last year decided to not renew 72,000 existing policies, including 29,000 homeowner policies. The company recently said it would offer renewals to policyholders affected by the Los Angeles County wildfires.

“The high concentrations of risk covered by (State Farm) in the fire footprint will generate a direct loss many times larger than the company’s pre-event surplus,” Krause wrote in a Feb. 3 letter to Lara. The company’s “already stressed financial position will be further weakened, even after accounting for billions of dollars in anticipated recoveries from a prudently robust reinsurance program that includes State Farm Mutual Automobile Insurance Company as the primary reinsurer.”

After multiple approved rate changes, State Farm’s moves have raised “serious questions” about its financial condition, according to Lara’s office.

“All Californians know from the past 10 years that the risks of wildfire are real and growing,” Lara said in a statement. “We have experienced first-hand the ravages of a changing climate. Our decisions must be guided by transparent data and an honest reckoning with the challenges we all face together.”

Consumer Watchdog advocated for a public, not private hearing process regarding Lara’s questions about State Farm’s proposed rate increase.

“The commissioner is right to call for more scrutiny of State Farm, which has so far stonewalled information requests,” Consumer Watchdog’s attorney Pam Pressley said in a statement. “However, the outstanding issues need to be raised and answered in a formal hearing … where there is formal discovery and due process rights.”

The group claimed that State Farm sought the rate increase “not because it cannot pay wildfire claims, but because it wants to protect its Wall Street credit rating.”

In a letter to State Farm, Consumer Watchdog pointed an S&P Global report that said the insurer and parent company State Farm Mutual have a combined $194 billion in surplus and reserves. They have an AA credit rating, the second-highest possible rating.

“Consumers who are struggling to rebuild their lives after the wildfires should not be forced to pay higher premiums to prop up State Farm’s bank accounts,” Carmen Balber, executive director at Consumer Watchdog, said in a statement.

The January wildfires in the LA area claimed 29 lives and preliminary estimates indicate the damage could be the costliest disaster in U.S. history.

More from Politics