By Megan Fan Munce, San Francisco Chronicle
https://www.sfchronicle.com/california/article/state-farm-settles-customer-refunds-21960349.php
State Farm General, the financially imperiled California home insurance giant, will not raise rates any further for homeowners under a settlement with the California Department of Insurance and Consumer Watchdog.
The settlement means that the previously-granted interim 17% rate hike for homeowners, which began appearing on customers’ bills last summer, will stand, but the company will not pursue the additional 11% rate increase it previously sought. Renters will see an additional minor increase on their bills, raising the interim 15% rate hike to 15.65%.
Owners of condominiums and rental homes, meanwhile, will get refunds. Last summer, an administrative law judge and Insurance Commissioner Ricardo Lara had given State Farm permission to temporarily raise rates on condos by 15% and rental homes by 38%.
But the settlement finalizes the permanent increases at just 5.8% and 32.8%, respectively. Affected policyholders will get refunded the difference with an interest payment of 10% after the agreement once the agreement is finalized, which could take over a month.
“This rate enables State Farm General to continue serving existing California customers,” a company spokesperson said in a statement. “We will continue to monitor our capacity to support the risks we insure and maintain the financial strength needed to pay claims and support customers and communities when it matters most.”
As part of the settlement, State Farm agreed to renew all of its existing homeowners, condo, rental home and renters policies for at least one year. Customers will also get a one-time 2.5% discount on their premium in the future when the insurers’ financial state is restored, according to Consumer Watchdog, the advocacy group who participated in the negotiations.
Altogether, State Farm customers will pay $492 million less per year than they would have under the insurers’ initial request, on top of more than $35 million in refunds, the group said.
Will Pletcher, Consumer Watchdog’s litigation director, said the settlement was evidence that California’s strict consumer protection laws, which require thorough review of all rate increase requests and mandate regulators allow public oversight, benefit consumers.
The agreement will still have to go before an administrative law judge, likely sometime next month, according to the Department of Insurance. After the judge’s ruling, Lara will have the final say on approving the settlement.
But for now, it’s the cap on a nearly two year-long battle over whether the state’s largest insurer should be allowed to raise rates across the state in order to avoid potentially going out of business.
The saga has in many ways defined California’s insurance crisis. In summer 2023, State Farm announced it would no longer write new home insurance policies altogether. Later that year, it secured permission from regulators to raise rates across the state by an average of 20%, with premiums for some homeowners nearly doubling.
The month the rate hike took effect, State Farm made another major decision with disastrous consequences for the market: nearly 30,000 customers across the stateliving in wildfire-prone areas would not be renewed. In one part of Santa Monica, State Farm dropped nearly 70% of its policyholders. In Orinda, a quarter of all insured residences were set to lose coverage.
All of these decisions, the company said, were unpleasant but unavoidable steps taken to protect its rapidly declining finances that had been ravaged by inflation, rising building costs and an unprecedented run of multibillion-dollar wildfires.
But it still wouldn’t be enough: in June 2024, State Farm General asked regulators for a near-universal 30% rate hike across all homeowners in the state, saying such a move was necessary to prevent the insurer from going insolvent.
After the Eaton and Palisades wildfires hit Los Angeles County, State Farm altered its request: it would take a smaller rate hike in exchange for expedited approval to avoid “a dire situation” in which it might not have enough money to survive the fire season.
Instead, the Department of Insurance called for a hearing into the company’s financial state and whether it warranted such a large increase. It was following that hearing that a judge and Lara agreed to let the insurer implement its interim rate hikes of 22% for homeowners, 15% for condo owners, 15% for renters and 38% for rental dwellings.
But a second hearing was slated to probe whether the insurer might still be able to justify the original large rate hikes it sought.
This settlement agreement takes that hearing off the table. But scrutiny of State Farm remains.
Last June, the Department of Insurance opened a formal investigation into State Farm’s handling of Los Angeles County wildfire claims, citing consumer complaints over inconsistent treatment and inadequate communication. Then in November, the Los Angeles County Counsel’s office opened its own probe into the insurers’ business practices.
State Farm has said it is “committed to paying customers what they’re owed,” citing more than $5 billion in payments made to wildfire survivors.
The state department said it expects to release the results of its investigation this spring.
