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On Friday, California insurance commissioner Ricardo Lara rejected State Farm’s request for “emergency” rate increases, going against the recommendation of his staff experts.
The request from State Farm involved insurance rate increases that would have gone into effect on May 1, 2025. The proposed increases were 22% for single-family homeowners, 15% for 15% for condominium owners and 38% for rental dwellings.
But under California Proposition 103, insurers must prove that such increases are necessary and not excessive. As frequent catastrophic weather storms lead homeowners and renters to grasp for stable insurance premiums, State Farm has stopped writing new policies in California and issued nonrenewal notices for thousands of existing policies.
In a press release issued last week, Lara addressed State Farm’s request for increases in California following last month’s Los Angeles-area wildfires.
“Under the strict review laid out by Proposition 103, the burden is on State Farm to show why this is needed now. State Farm has not met its burden,” Lara told the insurer in a letter.
The press release went on to say that the commissioner “has consistently required full transparency from all parties in the rate-making process — including insurance companies and intervenors — to ensure decisions are based on clear and justified data.”
Lara has also requested that State Farm answer critical questions about its financial condition and its proposed rate hikes. He called for an in-person meeting with State Farm officials on Feb. 26 where they can address these issues.
Lara’s office seeks to assess State Farm’s financial stability, specifically why the company’s financial position has deteriorated despite previous rate increases. It also wants to know what has changed since State Farm’s last rate filings that now require urgent relief. Consumer impacts and adequate documentation to justify claims and the rate hike were also requested.
“All Californians know from the past 10 years that the risks of wildfire are real and growing. We have experienced first-hand the ravages of a changing climate. We are clear-eyed about the work needed to protect our communities,” Lara said.
“Our decisions must be guided by transparent data and an honest reckoning with the challenges we all face together. As the elected head of the Department, my primary responsibility is to the people of California. This situation highlights the voters’ wisdom in having an independent, elected Insurance Commissioner making decisions to uphold market integrity in response to evolving threats, which today include climate change, rising global reinsurance costs, and a tightening national property insurance market.”
The letter from Lara to State Farm executives mentions that with his department’s approval, the company previously received rate increases of 6.9% in 2022, 6.9% in 2023 and 20% in 2024.
“In the absence of non-wildfire catastrophic losses in 2022 and 2023, how does State Farm explain the significant decrease in its policyholder surplus?” Lara wrote.
State Farm’s response, filed the same day, expressed disappointment about the lack of support regarding premiums and protections for Californians.
“We have gone to great lengths to clearly answer the questions outlined by the Commissioner. While we’re positioned to handle all of the claims associated with the most recent wildfires, State Farm General must seriously consider its options within the California insurance market going forward,” the statement read.
Jennifer McGuinness-Lubbert, the CEO of Pivot Financial, said that disasters like the LA fires trigger a threshold whereby insurance companies have to get money from reinsurers.
“It’s pretty widely known that State Farm got most of their reinsurance from their parent company,” she said in an interview with HousingWire.
In a separate LinkedIn post, McGuinness-Lubbert explained that’s where State Farm went wrong.
“If you don’t want this level of risk don’t buy reinsurance from your Parent buy it from third-party entities,” the post read. “California Homeowners should not pay for this, State Farm knew the risk of intracompany agreements, as they are institutional investors, now it’s time to pay like any 3rd party would have to.”
