State Farm “Provisionally” Can Do 22% Insurance Rate Hike

State Farm General got its wish to hike home insurance rates by an average of 22 percent.

The news comes weeks after being straight-armed by California’s chief insurance regulator for a request to increase rates because of the Los Angeles wildfires.

California Insurance Commissioner Ricardo Lara “provisionally” granted the unit of Illinois-based State Farm Mutual Automobile Insurance the emergency rate increase requested after billions in wildfire claims, the Los Angeles Times reported.

But the increase — which includes a 38 percent rate increase for rental buildings and 15 percent for renters and condo owners — won’t take effect until a hearing slated for April 8.

Lara approved the increase on March 14 after turning down the request last month, saying the insurer had failed to prove it was warranted.

He’d given the insurer an opportunity, however, to provide more evidence to justify the request.

In making his decision, Lara called on State Farm to halt any pending nonrenewals of customers statewide and for the insurer’s parent company to provide its California insurer an infusion of $500 million to stabilize its capital position, according to the Times.

“The role of insurance commissioner involves balancing a stable and sustainable insurance market that serves consumers with effective oversight,” he said in a statement. “To ensure long-term choices for Californians, I had to make an unprecedented decision in the short term.”

“The facts will be revealed in an open, transparent hearing,” he added.

State Farm has faced years of losses and huge damage claims after the Jan. 7 fires that raged Pacific Palisades to Altadena, and leveled more than 12,000 homes.

As of March 11, State Farm General and its parent have received more than 12,000 fire and auto claims related to the wildfires, and paid more than $2.2 billion to customers.

State Farm General has estimated it will pay out $7.9 billion in the wake of the Palisades, Eaton and other L.A. County fires.

But, its net losses from the fires will be closer to $600 million after reinsurance payments, which largely will come from its parent company. Reinsurance is bought by insurers from other insurers to protect themselves from catastrophic events.

Last March, the company announced it would not renew 72,000 home, apartment and other property policies in California, citing wildfire risks and other concerns.

That followed a decision in May 2023 to stop writing insurance for new businesses, homeowners, and other personal property and casualties in the state, with the exception of personal auto policies.

In June, State Farm requested a 30 percent rate increase for its homeowners policies, as well as other rate hikes, which await a decision. The request took state officials by surprise, with Lara saying it raised “serious questions about its financial condition.”

State Farm General last month said it’s lost $2.8 billion over the last nine years, including gains from investment income. State Farm Group, led by State Farm General’s parent company, was given a superior financial rating in December by a rating agency.

— Dana Bartholomew