California insurance commissioner "provisionally" approves State Farm 22% rate increase
California Insurance Commissioner Ricardo Lara announced Friday he has "provisionally" approved State Farm's premium hike of 22% as the company reports dealing with financial struggles stemming from the Los Angeles wildfires.
Lara described the not-yet-final emergency rate increase as a necessary measure given "unprecedented times" in a statement, saying the insurance company will have to justify the rate hike with data proving it's needed at a public hearing on April 8. During a Feb. 26 meeting at the Department of Insurance's Oakland office, State Farm told the commissioner it would be able to cover thousands of claims from the deadly wildfires in January which damaged and destroyed thousands of homes and other structures — but would need to raise homeowners' rates to cover the costs.
By Feb. 1, more than 8,700 LA wildfire-related claims totaling more than $1 billion were received by State Farm.
State Farm General, the company's California-only subsidiary, has said that rate hikes are needed to pay out future claims as it expects to cover an estimated $7.6 billion in LA wildfire losses. The company has said paying out the claims has already depleted its capital so far, so it requested approval to raise rates by 22% for homeowners and 15% for renters.
As the state's largest home insurers, State Farm provides coverage to more than 1 million California homeowners. The company released a statement Friday saying the provisional rate increase was a "step in the right direction" it works to build capital.
"It's time for certainty in the California insurance market for our customers," the statement reads. "The provisional nature of today's decision does not improve that certainty but it's a step in the right direction. We are moving forward with implementing this provisionally approved rate and will continue to work with the California Department of Insurance for a sustainable future for the California insurance market."
Some Los Angeles County residents who lost homes in the Palisades and Eaton Fires have reported not having enough coverage to cover the destruction and rebuild while others had their coverage dropped before the disasters. In the Pacific Palisades, 1,600 policies were dropped by State Farm in July, and an analysis by CBS News San Francisco last year found that State Farm also dropped more than 2,000 policies in other parts of LA including another neighborhood threatened by the Palisades Fire.
It reflects a broader trend of private insurers including State Farm, as well as Allstate and Farmers Insurance, of dropping policies in the state or halting underwriting, according to CBS Moneywatch. This has resulted in California homeowners having to either just forgo insurance altogether or get coverage through the state-backed insurer of last resort: the California Fair Access to Insurance Requirements Plan, or FAIR Plan.
The FAIR Plan offers basic fire insurance, providing coverage for homes in high-risk areas when private insurers will not.
During the meeting with State Farm last month, Lara brought up the concerns facing many homeowners given past instances of dropped coverage, asking the company to come up with a plan to improve its financial standing so ratepayers don't face more hikes.
"Many are already anxious about losing their coverage and being forced onto the Fair Plan," Lara said at the meeting. "And in terms of what certainty can consumers expect from State Farm if granted an interim rate, I do appreciate State Farm was the first insurer to voluntarily suspend pending non-renewals and cancellations in areas affected by the Palisades and Eaton fires."
The Department of Insurance had recommended a 22% interim rate increase which was later provisionally approved ahead of a full rate hearing next month.
"This approval would be provisional and will require State Farm to issue full refunds with interest if it fails to substantiate the validity of this rate," Lara told State Farm at the meeting, requiring the company to meet certain condition to keep the price increase.
The week, the insurance commissioner also called on State Farm to halt non-renewals and try to obtain a $500 million capital infusion from its parent company to address its financial struggles.
