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.
“Policyholders are not insurance company investors. They don’t pay premiums to boost a company’s surplus,” added Consumer Watchdog litigation director William Pletcher. “They’re not here to bail out an insurance company. We hope to see that (policy) data. We just haven’t seen the evidence that would justify the emergency request they’re making.
“State Farm is trying to push through a rate increase without following the rules. The company hasn’t made the case required under the law – their proposal isn’t even consistent – first they wanted 22%, now they want 17%. We’re glad the amount went down, but it still needs to be justified, and State Farm has not.
“There’s a process designed to protect the public from unjustified rate hikes. It wasn’t followed. Filings came in very late, in violation of the court’s orders. And this hurts the ability of the public to review, to analyze, and to respond to rate hikes. Californians deserve transparency and accountability in rate-setting. The record doesn’t support this rate hike. And it shouldn’t move forward.”
The hearing is scheduled to continue on Wednesday and possibly into Thursday. When asked about next steps, both State Farm and Consumer Watchdog said that they would wait on deciding until after the hearing.
“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.
