LOS ANGELES—California Insurance Commissioner Ricardo Lara “provisionally” approved State Farm General’s request for an emergency 22 percent increase in its homeowners insurance rate on March 14—but only if the company can justify it with data in a public hearing scheduled for next month.
“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.”
Lara said State Farm “claims it is committed to its California customers and aims to restore financial stability. 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 is scheduled for April 8 before an administrative law judge. As a result, Lara said, he hoped rate payers “will finally get to the bottom of State Farm’s financial condition. I am confident that my approach will provide Californians with greater choices in a competitive and stable insurance market—exactly what they deserve.”
On Feb. 25, State Farm said it has so far paid out $1.75 billion on about 9,500 claims filed as a result of the wildfires.
In a statement Friday, State Farm said it was “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.”
The company continued, “State Farm General has worked openly and honestly with all parties in this process. In addition, State Farm General will continue to monitor capacity to support its risks and build sufficient capital for the future.”
Additionally, Lara this week called on State Farm to halt non-renewals and pursue a $500 million capital infusion from its parent company to restore financial stability. He presented the proposal during a meeting with State Farm representatives, the Department of Insurance, and the intervenor in the matter.
For months, Lara said, Department of Insurance staff have engaged in informal discussions with State Farm and the intervenor to reach a resolution regarding State Farm’s request for a rate hike. However, the parties did not reach an agreement, with State Farm asserting that its financial situation has deteriorated. State Farm then reached out directly to Lara requesting an emergency interim rate increase, the department said.
Lara’s actions follow an unusual meeting at the Department of Insurance’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.
Lara says he has pressed the state’s largest home insurer for a plan to improve its financial standing and maintain its commitment to its more than one million California homeowner customers.
“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.”
To resolve the matter, Lara said, he ordered State Farm to respond to questions in an official hearing “promoting transparency and a path forward.”
