California approved an up to 38% property insurance rate hike for customers of State Farm, the state’s largest property insurance provider, after California’s January wildfires caused hundreds of billions of dollars in economic losses and threatened to drive the insurer out of the state.
The rate hike will be 38% for rental owners, 15% for tenants and condominium unit owners, and 22% for home owner-occupants. State Farm in California will receive a $400 million cash infusion from its parent company and agreed to refrain from implementing new block non-renewal programs through the end of 2025.
“The evidence presented in the hearing established a prima facie showing that State Farm is experiencing extraordinary financial distress, coupled with surplus depletion that threatens ongoing business operations,” found Karl-Fredric Seligman, administrative law judge, in a ruling Tuesday. “While the interim rates remain temporary and subject to further review, the stipulation seeks to balance consumer protections with the need for financial stability.”
California Insurance Commissioner Ricardo Lara adopted Tuesday’s ruling by an administrative judge granting State Farm’s rate increase. Lara, who said he is the “ultimate decision-maker,” had ordered the “administrative law judge to independently review the evidence and make a proposed decision for his final action.”
According to Consumer Watchdog, policyholders facing losses after the Eaton and Palisades fires in Los Angeles County have reported delays, denials, rotating adjusters and “inadequate assessments of damage, leading to financial hardship and widespread criticism of the insurer’s claim handling practices.”
“It adds insult to injury for consumers to be forced to pay significantly more for coverage when some of these same consumers may be simultaneously trying to recover from the fires while State Farm is mishandling their existing claims,” said Carmen Barber, executive director of Consumer Watchdog.
Since the passage of Proposition 103 in 1988, state regulators have had to approve any rate hikes, which has led to rates not keeping up with rising claims and risks.
State Farm said that as a result, it has lost $5 billion over the last nine years in California, paying out $1.26 in claims for every dollar in premiums collected.
The company said it had no option but to stop underwriting new policies in 2023.
Should State Farm have not been able to secure a rate increase and left the state, its roughly one million customers may have been forced into the remaining few other insurers operating in the state, or onto the state-regulated FAIR Plan of last resort for individuals without any other available insurance options, which comes with high premiums and relatively low coverage maximums that often fall well short of property values.
