Insurance commissioner Lara Seeks meeting with State Farm on rate request

After State Farm, California’s largest insurer, filed a request for an emergency 22% rate hike for homeowner policies, Insurance Commissioner Ricardo Lara on Friday requested a meeting with the company so they can explain their need for such an increase.

In a letter to the insurer, Lara said under Proposition 103, State Farm has the burden of explaining why the rate hike is needed now — which he says the company has “not met.”

According to this office, Lara has consistently required full transparency from all parties in the rate-making process, insurance companies and intervenors, to ensure decisions are based on data.

The commissioner scheduled an in-person meeting Feb. 26 in Oakland with the department, Consumer Watchdog, the intervenor in the case, and State Farm representatives. The insurer is expected to answer key questions regarding its financial stability, reasoning for the emergency rate increase, potential impacts on consumers and transparency in decision-making.

Earlier this month, State Farm officials said the company received more than 8,700 claims and paid out more than $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 leaders 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 amounting to 22% for homeowners, 15% for renters and 38% for rental dwellings.

State Farm announced in May 2023 that it would stop writing new policies in California, and the following year it said it would not renew 72,000 existing policies, including 29,000 homeowner policies. The company recently stated, however, that it would be offering renewals to wildfire-impacted homeowners.

“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. “(State Farm’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.”

Lara emphasized that under Proposition 103 insurers must prove that such increases are necessary and not excessive.

Despite multiple approved rate changes, State Farm’s request raises “serious questions” about its financial situation given its decision to stop writing new policies in California and renew thousands of existing policies, 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,” he added.

Consumer Watchdog issued a statement urging that answers be given through a public hearing process, not a private one.

“The commissioner is right to call for more scrutiny of State Farm, which has so far stonewalled information requests,” Pam Pressley, Consumer Watchdog’s senior attorney on the case, said in a statement.

The group claimed that State Farm sought the rate-hike to protect its “Wall Street credit rating.”

In a letter to State Farm, Consumer Watchdog noted S&P Global rates State Farm and its parent company, State Farm Mutual, have $194 billion in surplus and reserves combined. The insurer also has an AA 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.