California’s insurance commissioner rejected State Farm General’s plea for an emergency 22% increase in home insurance rates following the Los Angeles wildfires, stating that such a hike was not warranted. Commissioner Ricardo Lara criticized the state’s largest home insurer for failing to demonstrate the need for the increase or clarify how the additional premiums would impact its decision to cease writing new policies in California and not renew existing ones.
In response to State Farm’s request for the rate hike, Commissioner Lara emphasized the importance of ensuring that policyholders are not overcharged. He urged State Farm to provide clear explanations to its customers regarding the reasons behind the proposed increase and the company’s efforts to stabilize its financial situation. Lara’s letter to State Farm, published on the insurance department’s website, sought transparency and accountability from the insurer.
State Farm General had sought emergency rate hikes, including a 38% increase for rental properties and a 15% rise for renters and condo owners, effective May 1. The company cited the financial toll of the wildfires as the reason for the requested funds, as it awaits a decision on a previous rate hike petition. Despite having already paid out over $1 billion in claims from the recent fires, State Farm projected total losses of $6.5 billion pre-reinsurance payments.
Acknowledging State Farm’s efforts to address the commissioner’s concerns, the insurer emphasized its readiness to handle wildfire-related claims. However, State Farm General acknowledged the need to reassess its future options in the California insurance market. The company had previously decided not to renew tens of thousands of policies in the state due to wildfire risks and financial considerations.
State Farm’s emergency rate increase request aimed to bolster its capital reserves and maintain its ability to provide home insurance in California. The insurer highlighted a history of financial losses totaling $2.8 billion over the past nine years, prompting the need for additional funds. Commissioner Lara called for further documentation from State Farm justifying the rate hike and clarifying its financial standing to ensure transparency in the decision-making process.
In providing support to its California subsidiary, State Farm is seeking major rate hikes for homeowners and renters in the state. A meeting was requested for February 26 with State Farm to address the issues at hand, attended by Consumer Watchdog, an advocacy group from Los Angeles that has intervened in the rate review process and urged Insurance Commissioner Ricardo Lara to reject the proposed rate hike. The response from the group to Lara’s decision was mixed.
“We agree that the company needs to provide more information, but they should do so through a formal hearing process where we have discovery rights and the ability to examine State Farm’s financial records and expert testimonies,” said Jamie Court, the president of Consumer Watchdog. “We do not believe that Commissioner Lara has the authority to approve an interim rate hike without a formal hearing.”
State Farm has indicated its willingness to provide refunds to customers who have paid the interim emergency rates if the Department of Insurance approves lower increases than those requested last year. Previously, the company implemented a 6.9% increase in homeowner rates in January 2023 and a 20% hike that took effect in March of the same year.
State Farm General, holding approximately a 20% market share in the homeowners insurance sector in 2023, insures around 1 million homeowners in California and maintains 1.8 million other active policies. The devastating conflagrations on January 7 have significantly impacted the state’s insurance market, already under strain from a series of large wildfires over the past decade, albeit none as destructive as the recent L.A. fires, estimated to incur costs of up to $45 billion for insurers.
In response to the challenges posed by the fires, the insurance department unveiled a set of fire-related bills authored by multiple legislators. These proposed measures include granting tax-free grants to residents to enhance the fire resistance of their homes, mandating insurers to settle fire claims without a detailed inventory list, and imposing a 15% cap on fees for public adjusters hired by policyholders to file claims with their insurers.
Furthermore, one of the bills would authorize the commissioner to issue moratoriums preventing insurers from non-renewing and canceling policies of businesses and other policyholders in the aftermath of major fires. This power, already in place for homeowner policies, has been utilized by Commissioner Lara following the L.A. fires.
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