Department of Insurance Holds Public Hearing Over Proposed State Farm Insurance Rate Hike

The California Department of Insurance held a public hearing on Tuesday to help determine if they should accept the request by State Farm Insurance to increase the rate on rental homes, non-rental homes, rental units, and condos by at least 17% with an emergency rate hike.

For the past few years, State Farm, like other insurance companies in California, has drastically increased insurance rates and has began limiting who they cover within the state. This has included State Farm raising auto insurance rates in March 2023, announcing that they would no longer be accepting new applications for any kind of insurance other than personal vehicle insurance in May 2023, a 20% home insurance rate increase in January 2024, removing 72,000 insurance policies in the state, roughly 2% of their total number in California, in March 2024, and a big 50% rate increase request coming in July 2024.

While the insurance situation seemed to have improved at the beginning of the year, this was upended by the wildfires in Los Angeles. Combined, the Eaton and Palisades Fires caused 30 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. This included State Farm who sought an emergency rate hike of 22%. When broken down, the company seeks an increase of 22% for non-tenant homeowners, 15% for renters and condominium owners, and up to 38% for rental dwellings.

Insurance Commissioner Ricardo Lara, who initially signaled that he might not approve the request, conditionally approved the requested 22% insurance rate hike last month, but with the caveat of State Farm having to justify their reasons for an increase at a public hearing in April. On Tuesday, public hearings finally began.

State Farm said that the large rate hike was necessary as the large scale of the fire caused over $1 billion being paid out by February 1st. With huge losses mounting for the company, they said that the rate hike would help rebuild their finances and avoid dropping even more policyholders in the state than they already have. In testimony on Tuesday, State Farm revealed that their company surplus has gone from $4 billion in 2015 to only $600 million in 2024. They also revealed that they would no longer be pursuing a 22% rate increase, but now only a 17% increase.

“If State Farm Generals’ financial strength rating were downgraded, hundreds of thousands of consumers would lose their insurance,” said State Farm lawyer Katherine Wellington in opening remarks.

“The department agrees with State Farm that this is an emergency situation,” added Department of Insurance assistant chief counsel Nikki McKennedy, speaking for Lara who was not at the hearing. “Nothing in this situation is normal. The normal rules do not apply. We’re on the Titanic, and we see the iceberg. Now is not the time to argue about where to put the deck chairs.”

A change in proposed increase

However, advocacy group Consumer Watchdog fought hard against the 17% increase, saying that it wasn’t justified.

“We’ll wait for the outcome of this hearing to determine next steps,” said Consumer Watchdog Executive Director Carmen Balber in an interview with the Globe on Tuesday.

Following the end of the hearing this week, the Department of Insurance judge is to make a formal recommendation, either agreeing with or disagreeing with Commissioner Lara’s pre-approval from last month. This will then lead to a full evidentiary hearing currently scheduled for June 1st. Following that, Commissioner Lara is to make a final decision on the rate hike.