Lara declines immediate approval of State Farm rate increase

California’s Insurance Commissioner Richardo Lara has declined to immediately approve State Farm General’s request for an emergency rate increase. Instead, in a letter to SFG officials, including Dan Krause, President and Chief Executive Officer of SFG, Lara requested that they, along with representatives from Consumer Watchdog, an intervenor to the SFG request, meet with him on Feb. 26.

Lara’s decision and invitation were given in a Feb. 14 letter to SFG, which was his initial response to SFG’s Feb. 3 letter requesting that he grant rate increases of 22% for non-tenant homeowners, 15% for tenants (renters), 15% for tenants (condominium unit owners), and 38% for rental dwellings.

“. . . the burden is on State Farm to show why this is needed now. State Farm has not met its burden,” he said in his response to the grant request. “The burden is on the insurer to demonstrate and support its rate requests.”

“Consumers who are struggling to rebuild their lives after the wildfires should not be forced to pay higher premiums to prop up State Farm’s bank accounts,” said Carmen Balber, Executive Director at Consumer Watchdog in a press release following release of Lara’s letter.

In response to Lara, SFG stated, “We are very disappointed the Commissioner ignored his department’s recommendation to take the critical and necessary step to approve State Farm General’s request for interim rate increases associated with our June 2024 filings.

“This lack of approval sends a strong message to State Farm General about the support it will receive to collect sufficient premiums in the future to protect Californians against the risk of loss to their homes,” the company continued in its Feb. 14 press release.

As of Feb. 5, all of the insurance companies with coverage in the Southern California conflagration areas have paid a total of $6.9 billion to residential and commercial policyholders. Actual filed claims have been greater than 33,700 and nearly 20,000 have been fully or partially paid, according to the California Department of Insurance.

Consumer Watchdog almost immediately opposed SFG’s emergency request. They filed a preliminary response on Feb. 5, two days after the SFG letter to the DOI. On Feb. 7, Consumer Watchdog officially requested a full rate hearing regarding SFG’s pending applications in lieu of approving an interim rate.

The questions that Lara will ask at the Feb. 26 meeting with SFG cover a broad range of issues from State Farm’s financial stability and further justification for the emergency rate increase to the effect on SFG policy holders. For example, Lara asked how would granting this request affect policyholders, especially those who have already faced premium increases and non-renewals or how SFG’s business decisions to pause writing of new residential coverage and non-renew policies will be affected.

“We have gone to great lengths to clearly answer the questions outlined by the Commissioner. While we’re positioned to handle all of the claims associated with the most recent wildfires,” SFG said in its press release. “State Farm General must seriously consider its options within the California insurance market going forward.”

Following Lara’s letter, Consumer Watchdog expressed support for the delay and the prospect of a meeting with the insurer.

“The Commissioner is right to call for more scrutiny of State Farm, which has so far stonewalled information requests,” said Pam Pressley, Consumer Watchdog’s senior attorney on the case, in a press release. “. . . Lara’s refusal to approve this interim rate hike confirms Consumer Watchdog’s objections that State Farm needs to provide more data, but it needs to do it in a public hearing, as required by insurance reform Prop 103. We do not agree that the insurance commissioner has the power to approve an interim rate hike without a public hearing.”

SFG is the largest insurer in the State with more than 3 million policies, nearly 20% of the market. But in 2023, because of its declining financial position, SFG stopped writing new policies in the state. One year later, SFG announced it would not renew 72,000 existing California policies, including 29,000 that were for homeowners.