Insurance Commissioner Ricardo Lara approved an administrative law judge’s recommendation to grant State Farm General an emergency 17% increase in its homeowner insurance rates. This decision came after Judge Karl Frederic Seligman advised Lara to adopt the rate hike while the department reviews a larger rate increase request State Farm filed last year due to its deteriorating financial condition.
In a statement, Lara emphasized that State Farm must provide high-quality service to its California customers and fulfill its commitments. He also noted that the insurer must justify its financial state and outline its recovery plan during a full rate hearing before a neutral judge and the department’s experts.
The ruling also includes interim rate hikes of 15% for condo and renters insurance and 38% for landlord rental-dwelling insurance. Initially, State Farm sought a 22% emergency rate hike for homeowners coverage but later reduced it to 17%. The judge stated that State Farm was already in a weakened financial position before the Los Angeles wildfires, and the emergency rate hike would help stabilize its finances until the prior rate request is considered.
Seligman argued that the interim rate adjustment serves the best interests of California consumers and the public, ensuring State Farm’s financial stability while protecting policyholders. Lara had the authority to revise or reject the judge’s decision but chose to accept it, with conditions such as requiring a $400-million cash infusion from State Farm Mutual Automobile Insurance Co.
State Farm agreed to stop mass non-renewals of residential policies after announcing plans to cancel about 72,000 property policies earlier this year. The company stated that the emergency rate approval is a critical step for its continued service in California but emphasized the need to build sufficient capital for the future.
Lara’s decision has sparked controversy, particularly among victims of the Palisades and Eaton fires who are dissatisfied with State Farm’s claims handling. Critics have also questioned Lara’s ties to the insurance industry. Despite this, Lara remains focused on ensuring fair and full claim payments to wildfire survivors.
If a full hearing determines the interim rate hikes were unnecessary, consumers could receive refunds. State Farm has committed to paying $7.6 billion to settle fire claims, though reinsurance agreements will reduce its losses significantly.
Consumer Watchdog, a Los Angeles advocacy group, opposed the rate hike, arguing that Proposition 103 requires rate justification before increases. They criticized the decision, stating that refunds would come too late for struggling homeowners.
— new from Los Angeles Times