The deal allows State Farm to keep the rate increase, regardless of the hurricane payments
A deal with regulators and consumer advocates will allow State Farm General to keep a controversial increase in home insurance rates that went into effect last year after the Los Angeles wildfires.
An agreement sent to a judge late Friday confirms a $530-million emergency increase in home insurance rates Insurance Commissioner Ricardo Lara negotiated with the insurer last summer.
“The agreement will provide financial relief to many policyholders while ensuring continued coverage for State Farm policyholders while the California insurance market stabilizes,” the insurance department said in a news release.
State Farm argued that the emergency increase was necessary because the catastrophic fire losses threatened its financial projections.
The company reported that it paid out $6.2 billion last year, mostly for wildfires, with most of the costs covered by reimbursements. The company told regulators it expects to pay another $1 billion in claims.
The deal allows the insurer to keep an average 17% increase in homeowner rates. Local prices for many of the company’s 1 million customers were very high.
However, consumer advocates argued the deal held the line for higher increases and stopped more policy cancellations that exacerbated the crisis in the state’s insurance industry.
State Farm, California’s largest home insurer, suspended new business through 2023, announced 72,000 non-renewals, and sought a series of rate increases. Its premium for California homeowners is doubling from 2020 to 2024.
Under Friday’s agreement, State Farm agrees to stop bulk renewals in 2026 and review its rates in 2027.
In addition, State Farm would have to return about two-thirds of its 15% increase to condominium owners, bring a smaller return to rental property owners and be able to raise premiums for renters by half a percent.
“This move allows State Farm General to continue serving its existing California customers,” the company said in a statement. “We will continue to monitor our ability to support the risks we insure and maintain the financial strength needed to pay claims and support customers and communities where it matters most.”
If approved by an administrative law judge, the deal will be forwarded to Lara, who is expected to support it.
This plan sets aside efforts to consolidate State Farm’s rates in handling disaster claims.
Under pressure from community advocates and lawyers, Lara said in May that she wanted the two issues to be examined together.
In June, Lara announced that his department would conduct an “accelerated” review of State Farm’s market behavior. In the rate hearing process, agency staff sought to block discussions on State Farm’s handling of requests for higher price increases.
The settlement does not directly address complaints from disgruntled policyholders who say Lara’s management failed to respond to State Farm, which the insurance department has disputed.
The spokesperson of the department said that Lara will not comment on this issue as the payment of rates is still before the administrative judge.
The storm on Jan. 7 2025, we destroyed at least 16,000 homes, causing more than 42,000 insurance claims. State Farm said it has 13,500 fire and vehicle claims related to the fires.
The insurer has been criticized by fire victims for its handling of claims, including complaints of low wages, refusal of toxicology tests and delays in cost-of-living payments. The company declined to comment on the complaints.
Another 51,000 State Farm homeowners living in disaster areas are struggling to recover from the LA firestorm. The inclusion of control rules shows those areas among the areas most affected by the current flow.
Malibu resident Chad Peters said his bill from State Farm has increased 140% in the past year, from $3,500 to $8,400.
Peters said he has been fighting with State Farm for 14 months because of the smoke and fire damage to his home during the Palisades fire, and that the insurer once tried to cancel his payment because the house had not been repaired.
He called the rate hikes in those cases “ridiculous, when they’re giving everybody a hard time with their insurance … I mean, mine has been an uphill battle all year.”
Sen. Sasha Renée Pérez (D-Alhambra) urged Lara to delay the hike until the investigation into State Farm’s conduct is complete.
“The fact that I have many people who have not received any of their applications, who are still facing denials and delays, are losing their strength. [living expense payments] and … dealing with housing insecurity – it makes me very worried,” said Pérez.
Pérez, and Sens. Ben Allen (D-Pacific Palisades) and Sade Elhawary (D-Los Angeles), in April pressured Lara to withdraw the rate hike pending an investigation into State Farm General’s claims processes. “This has been a priority for us.”
Pérez said he will seek answers to the market ethics test as part of a Senate investigation into the insurance department’s handling of those complaints, as well as a review of the department’s conduct by a compliance officer who criticized the way State Farm handles claims.
State Farm General, an offshoot of the national insurance giant State Farm Mutual, contends that it is sinking financially as the season’s wildfires turn into catastrophes that devastate cities.
By mid-2024, the company asked to increase domestic premiums by nearly $1 billion. Lara secured an agreement for State Farm Mutual to lend its California company $400 million, but the insurer refused to cancel plans to dump 11,000 other policyholders.
The deal allows State Farm to avoid public hearings that would have forced the disclosure of solvency records, multiple non-renewals and other information it says would help competitors.
