California Regulator Blocks State Farm's Proposed Rate Increase

In the aftermath of last month’s Los Angeles wildfires, California Insurance Commissioner Ricardo Lara has rejected State Farm’s request for an emergency 22% average premium increase for homeowners, setting the stage for a potential clash with the state’s largest insurer.

In a letter dated Friday, Feb. 14, addressed to State Farm executives, Lara stated that he requires further details before considering approval. He has summoned company representatives to an in-person meeting on Feb. 26 at the Insurance Department’s Oakland office for an “informal conference” to address his concerns.

“The burden is on State Farm to demonstrate that interim relief is warranted under the circumstances,” Lara wrote. “My goal is to make sure policyholders do not have to pay more than is required. In light of the recent Los Angeles wildfires, State Farm’s customers need real answers about why they are being asked to pay more and what responsibility the company’s leadership is taking to get its financial house in order.”

State Farm Responds, Citing Financial Struggles

State Farm expressed disappointment in a statement, saying it “must seriously consider its options within the California insurance market going forward.”

“We are very disappointed the Commissioner ignored his department’s recommendation to take the critical and necessary step to approve State Farm General’s request for interim rate increases,” the company stated, adding that it has “gone to great lengths” to address Lara’s inquiries.

The insurer had sought interim rate hikes averaging 22% for homeowners, 15% for renters, and 38% for condominium owners. State Farm justified the request by citing more than $1 billion in wildfire claims already paid in Los Angeles County, with expectations of significantly higher payouts. The company aimed to implement the rate hikes by May while awaiting approval of its previous requests from last year.

Lara Seeks Further Justification

Although Lara acknowledged that his staff had recommended approving the rate hike, he emphasized that his primary duty is to California residents.

In his letter, Lara asked State Farm to clarify what had changed since its original request last summer. He also inquired about alternative measures the company is taking to improve its financial situation beyond raising rates and whether its parent company, State Farm Mutual Automobile Insurance Co., could provide financial support. Additionally, Lara questioned how approving the request would impact State Farm’s decision to halt new policies in California and its move to discontinue coverage for tens of thousands of existing customers.

California’s Worsening Insurance Crisis

California homeowners have faced growing challenges in securing insurance coverage, as many companies have reduced or withdrawn policies due to wildfire risks and rising costs. This has forced many property owners to rely on the FAIR Plan, a state-mandated insurance pool funded by insurers to provide fire coverage to those who cannot obtain private policies.

Last week, Lara approved a $1 billion emergency funding request for the FAIR Plan, which had warned of a potential cash shortfall due to mounting claims from the Los Angeles wildfires. Insurers participating in the FAIR Plan must contribute to the funding and now have the option to recover half of their share by imposing a one-time surcharge on policyholders.