California Insurance Commissioner Ricardo Lara on Friday “provisionally” approved a 22% emergency increase for State Farm homeowners policies that the company must justify with data at a public hearing set for next month.
Lara rejected State Farm’s request for rate hike in February after finding that California’s largest insurer had failed to provide enough evidence that it needed the increase immediately. The company also asked for rate increases totaling 38% for rental dwellings and 15% for renters and condominium owners.
State Farm representatives will have a chance to submit additional evidence to support the emergency request following the Eaton and Palisades fires that erupted Jan. 7 amid fierce winds. The wildfires scorched nearly 60,000 acres, destroyed more than 16,000 structures and caused 29 deaths.
“The role of insurance commissioner involves balancing a stable and sustainable insurance market that serves consumers with effective oversight,” Lara said in a statement. “To ensure long-term choices for Californians, I had to make an unprecedented decision in the short term.
“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.”
The hearing before an administrative law judge is scheduled for April 8.
Lara said he hoped the hearing “will finally get to the bottom of State Farm’s financial condition.”
On Feb. 25, State Farm announced the company has paid out $1.75 billion on about 9,500 related to the wildfires.
State Farm issued a statement Friday that said, “It’s time for certainty in the California insurance market for our customers. The provisional nature of today’s decision does not improve that certainty but it’s a step in the right direction. We are moving forward with implementing this provisionally approved rate and will continue to work with the California Department of Insurance for a sustainable future for the California insurance market.
“State Farm General has worked openly and honestly with all parties in this process,” the statement continued. “In addition, State Farm General will continue to monitor capacity to support its risks and build sufficient capital for the future.”
Also this week, Lara called on State Farm to stop nonrenewals of homeowners policies and seek a $500 million capital infusion from its parent company to restore fiscal stability. He presented the proposal during a meeting with State Farm representatives, the Department of Insurance and the intervenor in the matter.
“Currently, too many Californians live in fear of having their insurance policies non-renewed,” Lara said. “This anxiety perpetuates misinformation and discourages consumers from accessing their entitled benefits. This situation is unacceptable. I will remain vigilant in ensuring that State Farm processes claims fairly, fully, and promptly, and stands by its California customers.”
According to Lara, for months Department of Insurance staff have engaged in informal discussions with State Farm officials and the intervenor to reach an agreement regarding the company’s rate hike request. The parties, however, did not make a deal. State Farm asserted that its financial situation has deteriorated, then directly requested Lara approve an emergency interim rate increase.
The commissioner’s latest moves follow an uncommon meeting at the Insurance Department’s Oakland office on Feb. 26 in which State Farm informed the commissioner that while it can cover claims from the Southern California wildfires, the disaster has worsened its financial condition.
