California regulators reject — for now — State Farm’s emergency rate hike request

California insurance regulators are demanding that State Farm answer “critical questions about its financial condition” in response to the company’s request for emergency approval of a steep rate hike for homeowners in the wake of the Los Angeles wildfires.

Earlier this month, the company asked the California Department of Insurance to approve rate increases averaging 22% for homeowners statewide. It also asked for a 15% increase for renters and condo owners and a 33% hike for rental owners.

The insurer, which had previously issued warnings about its financial stability, said the rate increases are necessary to ensure it can continue to pay out claims after covering more than $1 billion in losses in the blazes in Southern California.

“The burden is on State Farm to show why this is needed now,” said Insurance Commissioner Ricardo Lara in a letter to the company Friday. “State Farm has not met its burden.”

While Lara shot down State Farm’s immediate request, his department could still ultimately approve the increase to homeowner premiums, though potentially at a lower rate.

If approved, it’s unclear how much premiums could increase in the Bay Area or which parts of the region would see the largest rate hikes. Statewide, the insurer covers roughly 15% of homes, more than 1 million homeowner customers.

In a statement, Lara said he’s scheduled a Feb. 26 meeting in Oakland with State Farm officials to ask for more specifics about the company’s financial situation. That includes why it claims the emergency hikes are needed following recent rate increases and whether State Farm General, the insurer’s California-only subsidiary, is receiving financial support from its parent company.

State Farm, which has ended coverage for tens of thousands of California homeowners and paused writing new policies anywhere in the fire-ravaged state, said in a statement it has already “gone to great lengths to clearly answer the questions outlined” by Lara.

“This lack of approval sends a strong message to State Farm General about the support it will receive to collect sufficient premiums in the future to protect Californians against the risk of loss to their homes,” the company said.

State Farm’s latest plea to regulators followed a 30% rate hike request in June. At the time, the company asked the insurance department to grant a “variance” to raise premiums higher than usual due to the company’s uncertain financial outlook.

Illinois-based State Farm reported net losses of more than $6 billion in both 2022 and 2023. The losses came amid a “significant increase” in catastrophe claims, according to the company’s financial results last year.

With the June request still pending, the insurer asked regulators to approve the smaller emergency hike to help cover losses in the Los Angeles fires.

Consumer groups said they supported Lara’s request for more information but argued that under state law, the meeting should instead be held as a public hearing.

Pam Pressley, a senior attorney with Los Angeles-based Consumer Watchdog, said in a statement that “the outstanding issues need to be raised and answered in a formal hearing, which Consumer Watchdog has called for, where there is formal discovery and due process rights.”