State Farm policyholders in California could see an increase in their rates next month after the state’s insurance commissioner approved the insurer’s emergency rate hike request.
Earlier this week, Commissioner Ricardo Lara adopted a judge’s ruling that grants the state’s largest insurer a 17% temporary rate increase set to take effect June 1.
It’s a milestone in the ongoing battle between the insurer, the state and policyholders, and it comes following devastating fires that tore through the Los Angeles region earlier this year.
Exclusive data from Homes.com found that the two largest of those fires, the Palisades and Eaton blazes, destroyed roughly 11,000 homes valued at about $29.7 billion.
The cost of those losses has created challenges for insurers, even after a number of those companies have already fled at-risk California markets. More than $12 billion in insurance claims related to the Eaton and Palisades fires had been paid as of March 5, according to the latest data from California’s insurance commissioner.
The rate increase is temporary
Almost immediately after the fires, in February, State Farm said it had already doled out more than $1 billion in claims and requested an emergency interim rate increase that would see homeowner policy rates increase by 22% to “avert a dire situation.”
Commissioner Lara assigned a department judge to conduct an independent review of the request, resulting in a ruling that has now been adopted.
The final decision allows State Farm to increase its rates temporarily, “with a full rate hearing scheduled to start at a date determined by the judge.” It also requires the company to receive an immediate $400 million cash infusion from its parent company.
In other words, State Farm will eventually have to prove its need for the emergency hike and explain how it plans to fix its finances.
Lara acknowledged that his decision required finding a balance between customers and “the integrity of our insurance market.”
“Let me be clear: We are in a statewide insurance crisis, affecting millions of Californians,” he said in a statement. “Taking this on requires tough decisions. This is not a game. This is not a media-driven moment for some to exploit.”
“I expect State Farm to provide the highest level of service to its California customers and to fulfill its promises,” Lara added. “I am focused on ensuring that State Farm pays its claims to wildfire survivors fully and fairly — and nothing is off the table.”
Consumer advocate calls the increase a 'great disappointment'
Policyholders and advocates have pushed back against the decision to grant State Farm’s request.
Carmen Balber, executive director of advocacy group Consumer Watchdog, for example, called the approval “a great disappointment.”
“State Farm policyholders, many of whom are struggling to get their claims paid by the company after the Los Angeles fires, are now facing double-digit rate hikes,” she said in a statement. “It adds insult to injury for consumers to be forced to pay significantly more for coverage when some of these same consumers may be simultaneously trying to recover from the fires while State Farm is mishandling their existing claims.”
State Farm did not directly respond when asked about instances of mishandling policyholder claims.
Balber said that even if consumers eventually qualify for refunds, it would be “too little, too late.”