State Farm Evaluates Options in California Following Rate Increase Denial
State Farm General Insurance has announced that it is currently “considering its options” in California after a significant decision made by the state’s insurance Commissioner, Ricardo Lara. The commissioner recently rejected an emergency request from the insurer for interim property rate increases.
In a statement regarding the situation, State Farm expressed its disappointment, stating, “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, property, and other claims.” The company emphasized that while it is “positioned to handle all of the claims associated with the most recent wildfires,” it must reassess its strategy within the California insurance market.
On February 14, Commissioner Lara communicated to State Farm that the company had not sufficiently demonstrated the need for emergency property rate increases, which ranged from 15% to 38%. He requested further data and arranged a meeting at the end of the month with the insurer and the intervenor, Consumer Watchdog.
State Farm pointed out that the commissioner did not adhere to the recommendation from his department, which had suggested approving interim rate increases associated with a June filing that sought larger adjustments. On February 7, the California Department of Insurance had submitted a proposed order advocating for the approval of temporary rates while awaiting a comprehensive decision following a rate hearing. However, Lara ultimately did not accept this recommendation, emphasizing, “As the elected head of the department, my primary responsibility is to the people of California.”
The interim rate request is part of State Farm General’s broader 2024 filing, which proposed rate increases of 30% to 55% across four property lines, with the aim of implementing these changes by early 2025. These requests have faced public challenges. The insurer had previously stated that it required immediate relief, including a 22% increase in homeowners’ rates, to alleviate financial pressures impacting policyholders and the overall state insurance market.
In the wake of State Farm’s filing, Lara approved a $1 billion assessment on member insurers for the California FAIR Plan, based on their prior market share. Insurers have the option to pass up to 50% of this assessment onto policyholders through a temporary supplemental fee, though it cannot be integrated into future rates.
State Farm has reported more than $5 billion in cumulative underwriting losses over the past nine years, pointing to a significant misalignment between rates and the associated risks. As of February 1, the company had received over 8,700 claims related to the Los Angeles wildfires, highlighting the ongoing challenges faced by the insurer in the region.
