State Farm isn’t done seeking a rate increase in California, upping its request a week after getting the OK for a large rate hike to what the company had originally wanted before being rejected and agreeing to an interim deal for an increase.
The wildfire-bitten insurer recently got approval for a 17% rate increase following billions of dollars in losses from the Los Angeles wildfires and pullback on writing new policies in the state.
Administrative Law Judge Karl Seligman last week recommended approval of State Farm interim rate hike on Monday. California Insurance Commissioner Ricardo Lara still must make the final approval.
Lara and State Farm have been meeting for months on the details of an increase before the original rate request was lowered.
The terms of last week’s approval include the agreement that State Farm’s non-tenant HO-3 line would get a 17% increase, a 15% increase in its renter/condo line and a 38% increase in rental dwelling, while the carrier committed to refraining from a new round of nonrenewals through the end of 2025. The agreement also stipulates that parent company State Farm Mutual will make a $400 million capital infusion into State Farm.
State Farm is the state’s largest homeowners insurer. The interim rates remain temporary, and are subject to a full hearing process.
S&P Global Ratings on Tuesday lowered its financial strength and issuer credit ratings on State Farm General Insurance Co. to ‘A+’ from ‘AA’.
The ratings remain on CreditWatch with negative implications, according to an announcement from S&P.
According to State Farm, the overall request of 30% would not be on top of the 17% hike.
“While we are pleased that Commissioner Lara approved the interim rate of 17% for State Farm General Insurance Company, this change only addressed part of the original request of 30% filed in June 2024. The overall request of 30% would not be on top of the 17% interim rate change. State Farm General is still pursuing the full rate request,” a statement from the company reads. “A hearing on the full rate request is expected to be held this year.”
The company’s California emergency rate request made in February was provisionally OK’d in March by Lara, who made the hike dependent on the company justifying the rate increase with data during a public hearing.
The request was then dropped to 17% after an early April hearing during which lawyers for the company, the California Department of Insurance and Consumer Watchdog presented arguments to determine the fate of State Farm’s request.
Related: Bill to Address California Wildfire And Insurance Crises Moving Through Legislature
The California Department of Insurance said State Farm’s request for a rate increase isn’t new.
“It’s the same one they filed in June 2024, originally asking for 30%,” a CDI statement issued in response to a request for comment states. “The judge approved an interim 17% increase based on evidence presented in a hearing in April. A full rate hearing on the same request is still scheduled to get to the facts. They want more? We want more data, more transparency, more policyholders served, and more policies written in wildfire distressed areas. State Farm wanting a rate increase doesn’t change the law. All rates must be justified so consumers don’t pay more than is required.”
State Farm has put some of its troubles on the L.A wildfires, which destroyed more than 11,500 properties. As of March, the carrier had reported paying out $2.5 billion for the LA wildfires in January.
The fallout from the wildfires touched many large carriers and has made the marketplace in California tougher, with availability and high rates already a growing concern. According to the California Department of Insurance, 37,749 claims have been filed related to the fires and $12.1 billion has been paid out.
The losses have factored into bottom lines and even the state’s carrier of last resort. Lara in February approved a controversial California FAIR Plan request for a $1 billion assessment on admitted market insurers to cover claims from the wildfires.
Consumer Watchdog, which has opposed State Farm’s requests for a rate hike, said the decision would make consumers pay now and allow State Farm to wait months before having to justify the hike.
The group also took aim at the latest request.
“This even larger rate hike request goes from rude awakening to cold shower for millions of State Farm policyholders, many of whom can’t get their claims paid in the wake of the L.A. Fires,” said Carmen Balber, executive director of Consumer Watchdog.
Bloomington, Illinois-based State Farm said at the time of its initial request that the increases were needed to align cost and risk, and enable State Farm to rebuild capital. Over the last nine years, the lack of alignment has meant that for every $1 collected in premium, the carrier has spent $1.26, resulting in more $5 billion in cumulative underwriting losses, according to State Farm.
Adding to State Farm’s troubles, the company is also part of two lawsuits filed in Los Angeles that allege major home insurance companies colluded to limit coverage in California communities at high risk for wildfires and force homeowners onto the FAIR Plan.
Insurers, including State Farm and 24 other companies that hold 75% of California’s home insurance market, were part of an “illegal scheme” in violation of California’s antitrust and unfair competition laws, according to one of the lawsuits filed in April.
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