Firefighters had barely achieved full containment of the blazes that leveled whole neighborhoods in Los Angeles before State Farm General asked the California Department of Insurance on Feb. 3 to grant it massive rate hikes for policyholders, including a 22% increase on homeowners on an “emergency” basis beginning May 1. The insurance department’s staff, in turn, took almost no time in drafting an agreement to the request and recommending that Insurance Commissioner Ricardo Lara sign it.
What will Lara do?
“Well, he has made it very clear in the past that he’s willing to give the industry everything it wants,” said Carmen Balber, executive director of L.A.-based advocacy group Consumer Watchdog, which is fighting State Farm’s request. “I fear that we’ll see the same here.”
Lara may well grant the increase, but it won’t be immediate. In a letter dated Feb. 14, not long after Capital & Main posted an initial version of this story, the insurance commissioner told State Farm officials that he needs to meet with them personally before approving their request, adding that the company “has not met its burden” to prove that the rate hike is necessary.
The meeting, which Lara described as an “informal conference” and also includes Balber’s group, is scheduled for Feb. 26 at the insurance department’s Oakland office.
“My goal is to make sure policyholders do not have to pay more than is required,” Lara wrote to the insurance company. “In light of the recent Los Angeles wildfires, State Farm’s customers need real answers about why they are being asked to pay more and what responsibility the company’s leadership is taking to get its financial house in order.”
In response to the letter, State Farm officials said Lara’s refusal to immediately grant their request “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 officials added that the company “must seriously consider its options within the California insurance market going forward.”
The history, though, suggests that State Farm in the end will receive a rate increase — and the result could be a new level of pain for California homeowners and renters, tens of thousands of whom are already reeling from catastrophic losses of their property and way of life. And there’s a kicker that some will find ultimately insulting: If granted an emergency increase, State Farm wouldn’t have to formally prove its case — not now, and perhaps not for quite a while.
Despite a California law requiring any insurance premium increase greater than 7% to go before a hearing if a public entity challenges it, State Farm is additionally asking Lara to grant the insurance giant rate hikes of 15% on renters and condo owners, as well as a 38% increase on the rental properties themselves — all by May 1. Then, sometime down the road, Lara’s department would hold a public hearing (the “informal conference” notwithstanding) to determine whether this is justified.
State Farm may be calling its request an emergency, but such rate hikes have a history of becoming permanent.
This kind of maneuver is not unprecedented. It’s common practice among California’s energy/utility businesses — one used time and again by Pacific Gas & Electric to collect higher rates upfront while the California Public Utilities Commission ponders whether the increases on PG&E’s customers are justified.
State Farm is asking rate hikes of 22% on home and condo owners, and 15% on renters.
Balber, however, says this is a first for the insurance industry, claiming that State Farm has come “nowhere near” providing the sort of financial information that would justify such increases.
“We told the insurance department, ‘No. We can’t sign off on this,’” said Balber, noting that Consumer Watchdog is acting as a public participant in the case. “But department staff sent [Lara] a letter and a draft agreement that would give State Farm the increase they’re looking for.”
State Farm did not respond to multiple requests for a response to a series of questions from Capital & Main.
State Farm General, the California subsidiary of national insurance behemoth State Farm Mutual Automobile Insurance Company, tied its most recent rate request to policyholder fallout from the Los Angeles wildfires. The company estimated that as of Feb. 1 it had received 8,700 fire-related claims and paid out $1 billion, with “significantly more” payments likely.
Writing to Lara, the subsidiary’s executives said they needed the commissioner’s “urgent assistance in the form of emergency interim approval of additional rate to help avert a dire situation for our customers and the insurance market in the state of California.”
Asking the insurance department for a steep rate hike, though, is hardly new territory for State Farm. In the summer of 2024, it asked Lara to approve enormous increases: 30% on homeowners, 36% on condo owners and 52% on renters. And that was after Lara’s department had approved State Farm’s request for a 20% increase in March 2024 and a 6.9% hike in January 2023.
An industry behemoth warns of a wild-fire “emergency” – for “the insurance market in the state of California.”
Lara, who said at the time that State Farm General’s request for a 30% hike on homeowners “raises serious questions about its financial condition,” has not ruled on last summer’s proposal. February’s emergency rate hike request would likely be considered at the same time as those older proposals, with one final increase being determined across all three categories in which State Farm wants raises. At the hearing, State Farm could ask for any figure it wants, not merely the increase it is requesting now.
The process could easily take six months or longer, based upon the insurance department’s normal patterns of review. But under the draft agreement forwarded to Lara by his staff, State Farm would nevertheless begin collecting the 22% increase beginning in May.
Balber said neither the insurance department nor Consumer Watchdog has received from State Farm the financial information that the two entities have asked for from the insurer going back to last summer. Under a 1988 voter initiative, public organizations such as Consumer Watchdog are entitled to review this information if they are challenging a rate hike.
In the emergency request, the company does not appear to say that it can’t pay all its customer claims related to the L.A. fires. Instead, the executives wrote to Lara that paying out the claims will “deplete capital” from State Farm General and put its credit rating at risk, even though it carries reinsurance — that is, insurance on its insurance policies — largely through its own parent company.
In opposing the rate increase, Consumer Watchdog noted that over the past decade State Farm General has received only about 20 cents on the dollar that it has paid to its parent company for reinsurance, a figure far below other firms that buy their reinsurance from third parties. The consumer group has said the low reimbursements suggest that State Farm’s California subsidiary is passing along a chunk of its profits to its parent in the form of reinsurance premiums.
“What they’re really trying to do is build their bank account back up — and that is not a job for ratepayers,” Balber said. “Policyholders’ payments are meant to go for future claims, not building up State Farm’s account.”
State Farm General insures the most California homeowners, but it is hardly alone in ratcheting up insurance pressure on Californians. As the Los Angeles Times has reported, several other companies, including Allstate, Farmers Insurance and The Hartford, have variously raised premium rates, stopped writing new policies or fled the market. And there’s no doubt that the state’s climate-driven catastrophes have led to huge collective payouts on policies held by many insurers.
Few companies, though, have the financial wherewithal of parent firm State Farm Mutual, which by its own accounting had a net worth of $135 billion in 2024. Consumer Watchdog, citing State Farm’s own annual reports, said the company has used some of that vast surplus in the past to bail out its subsidiaries after catastrophe-related payouts, including in Texas several years ago.
Why State Farm Mutual isn’t helping its California subsidiary amid the current situation seems like a fair question — and based upon Lara’s letter to the insurer, it could be one of several questions he’ll be asking on Feb. 26. What happens after that is anyone’s guess. “I’m holding out the slimmest sliver of hope,” Balber said, that the state will push back on State Farm’s desire for yet more rate increases at a time when many California policyholders are already gasping for air.
This story was updated on Feb. 15.
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