California Department of Insurance Provisionally Accepts State Farm’s Requested 22% Rate Hike

Insurance Commissioner Ricardo Lara announced on Friday that he has conditionally approved the requested 22% insurance rate hike by State Farm, but only if they can justify their reasons for an increase at a public hearing in April.

For over two years, insurance companies have been limiting policies, ending new policies, or generally reducing their presence in the state. In 2022, GEICO closed down all 38 of their offices in the state, with State Farm raising auto insurance rates in March of 2023. However, the largest action came in May 2023 when State Farm Insurance announced that they would no longer be accepting new applications for any kind of insurance other than personal vehicle insurance because of large increases in construction costs and inflation. About a week later, it was revealed that Allstate did the same thing, stopping all new homeowners insurance policies for the last several months. Later in the year, Farmers announced new limits on the number of new homeowner insurance policies it will give each month, with numerous other insurance companies, like Liberty Mutual, no longer offering certain policies in the state.

In August 2023, Farmer’s announced 2,400 layoffs, with nearly all companies raising rates by at least 20% in late 2023 and early 2024, including State Farm. For the companies, the reasons were simple: large increases in construction and reconstruction costs, a rise in crime, inflation, and a largely increased risk of danger because of more wildfires. In March 2024, State Farm also made the drastic decision to remove 72,000 insurance policies in the state, roughly 2% of their total number in California. Two months later, both the Tokio Marine America Insurance Company and the Trans Pacific Insurance Company announced they would be pulling completely out of California, ending over 10,000 home and umbrella insurance policies. Finally, more home insurance rate increases were announced later in 2024, including 15% for Travelers, 34% for Allstate, and up to 50% for State Farm.

However, going into 2025, things began to stabilize in the industry, with some insurance companies, like Farmers, actually announcing an increase in the number of news homeowner and rental policies. But that changed following the wildfires in Los Angeles. Combined, the Eaton and Palisades Fires caused 29 deaths, 16,255 destroyed structures and a further 2,088 damaged structures. With so many homes and rental buildings either destroyed or damaged, insurance companies were suddenly flooded with tons of claims. No company was expecting so many claims, especially total loss claims, to come at once.

As a result, facing all but certain sky-high payouts, State Farm announced in early February that they asked the Department of Insurance to approve an emergency rate hike for all home owners and renters. Across the board, they asked for an increase of 22% for non-tenant homeowners, 15% for renters and condominium owners, and up to 38% for rental dwellings. Doing so would help avert “a dire situation” in the state. In addition, the company said that over 8,700 fire claims have been filed so far, with over $1 billion paid out by February 1st. They also said the fires will likely go down as the costliest disaster in company history.

While initially guarded with a response, the Department of Insurance slowly began to more towards State Farm’s side of the issue, especially after State Farm maintained that it would be an emergency interim increase and that they now stand to pay out $7.6 billion in claims from the fires. In a late February meeting with Lara, State Farm told him that while it can cover claims from the Southern California wildfires, the disaster overall worsened its financial condition.

A 22% rate increase

“The role of Insurance Commissioner involves balancing a stable and sustainable insurance market that serves consumers with effective oversight. To ensure long-term choices for Californians, I had to make an unprecedented decision in the short term,” explained Lara on Friday.

“State Farm claims it is committed to its California customers and aims to restore financial stability. I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers. The facts will be revealed in an open, transparent hearing.

“Currently, too many Californians live in fear of having their insurance policies non-renewed. This anxiety perpetuates misinformation and discourages consumers from accessing their entitled benefits. This situation is unacceptable. I will remain vigilant in ensuring that State Farm processes claims fairly, fully, and promptly, and stands by its California customers.

“To resolve this matter, I am ordering State Farm to respond to questions in an official hearing, promoting transparency and a path forward. It is evident that other California insurers are unable to absorb State Farm’s existing customers, which poses a significant risk of these customers ending up on the FAIR Plan—a scenario we all wish to avoid as my Sustainable Insurance Strategy is implemented.

“We will finally get to the bottom of State Farm’s financial condition. I am confident that my approach will provide Californians with greater choices in a competitive and stable insurance market – exactly what they deserve.”

While moving forward with the meeting and signaling a potential approval, there has yet to be any confirmation as State Farm will have to publicly prove on April 8th that they need the increased rate.

“Lara’s decision to move forward with a public hearing before deciding whether to issue a final approval is a victory for policyholders,” said Consumer Watchdog on Friday. “The company has so far failed to back up its request, and unless State Farm proves otherwise the outcome of a hearing should be a rejection.”

Nonetheless, the decision between increasing the rate hike for Californians already paying high insurance costs or allowing the company to get additional funds to potentially avert a financial crisis is to be a big one, as the approval could bring on a wave of other similar rate increase requests.

“Californians who lost their homes need payouts, other Californians with State Farm are paying so much already, and State Farm is now in a huge bind because of so many of their covered homes being destroyed or damaged all at once,” explained Trevor Connery, a lobbyist who has worked for insurance companies in the past, to the Globe on Friday. “It all comes down to that meeting in a few weeks. They need to prove, with information they would, in any other circumstance not want to make public, that they need that increase. There are some indications they might side with them, but Lara’s office will also likely be flooded with letters, e-mails, calls, messages, and so much more from people who are cash-strapped themselves. I don’t think anyone is envying being Lara right now.”