The California Department of Insurance (CDI) is gearing up for a thorough and transparent review of State Farm’s request for an emergency rate hike, submitted on February 3.
Gabriel Sanchez, a spokesperson for the CDI, emphasized the department’s commitment to protecting California consumers as it examines the implications for the state’s residential property insurance market.
Recommendations will be provided to Insurance Commissioner Ricardo Lara based on this evaluation.
Rate Increase Proposals
Sanchez pointed out that, although Commissioner Lara has placed a moratorium on cancellations and non-renewals in the wake of the devastating Los Angeles wildfires, insurers are still permitted to collect premiums from policyholders.
State Farm is proposing an average rate increase of 22% for property insurance, with an eye-catching 38% rise aimed at renters’ coverage, set to kick in on May 1.
This increase is projected to generate about $740 million each year.
Furthermore, the insurer has also requested a 30% hike for homeowners’ insurance set for June 2024, which could add an estimated $1.3 billion in revenue and is presently under review.
Financial Concerns and Pushback
This request comes from State Farm General, the company’s subsidiary operating in California.
In a recent statement, State Farm highlighted that the financial repercussions from January’s wildfires are severely affecting its capacity to keep enough reserves for claims.
They disclosed having paid over $1 billion in wildfire claims and expect to spend more, especially after a recent downgrade of their financial stability rating by AM Best.
State Farm General has expressed concern that ongoing losses from wildfire claims might lead to further downgrades, potentially impacting customers with mortgages who rely on State Farm General insurance as collateral.
Consumer Watchdog, which has formally intervened in the evaluation process since June, is contesting State Farm’s claims about a financial emergency that justifies a rate hike.
They argue that the company’s previous request was denied because State Farm couldn’t provide key financial documents.
Transparency and Accountability
Carmen Balber, the executive director of Consumer Watchdog, proposed that State Farm’s parent company, which boasts a massive surplus of $130 billion, should cover the financial gap rather than passing costs on to California homeowners.
The advocacy group has sought vital financial data from State Farm, making 14 requests from September to January.
Consumer Watchdog asserts that to justify a 22% rate increase, State Farm must show an obligation to pay around $9 billion in claims.
Balber stressed the importance of transparency, insisting that State Farm must verify its claims of financial difficulty, arguing that the company has not adequately done so since September.
She criticized State Farm for seizing the opportunity to raise rates in light of a tragic situation while skirting protections against insurance price gouging.
This is particularly important during a time when such safeguards are essential.
Balber urged Insurance Commissioner Lara to demand that State Farm provide proof of the necessity for this substantial rate hike.
Per Proposition 103, California’s regulation on insurance rates established in 1988, the insurance commissioner is tasked with assessing requests that are challenged by intervenors like Consumer Watchdog.
With that in mind, the CDI is set to coordinate discussions involving its rate review experts, State Farm General, and Consumer Watchdog to formulate a recommendation on the proposed increase.
Source: Dig-in