Los Angeles, CA — State Farm this morning asked Insurance Commissioner Ricardo Lara to authorize an immediate 22% increase in State Farm’s home insurance rates, amounting to $740 million a year, but has not provided the financial data it claims would justify the increase. The demand comes just four weeks after two Los Angeles neighborhoods were destroyed by wildfire.
Last June, State Farm applied for a 30%, $1.3 billion increase in its homeowners rates, claiming that California policyholders – rather than State Farm’s parent company – should be forced to invest in the company to bolster it financially. State Farm received a prior $471 million, 20% rate increase, that took effect in March of 2024.
Under Proposition 103, insurance companies must open their books and justify rate requests before they can take effect. State Farm’s request in June has been stalled by the company’s refusal to disclose data on its finances, including apparent overpayments for reinsurance State Farm buys from its parent company. The parent company has more than $130 billion in surplus.
“If State Farm needs money the parent company should step in with its $130 billion surplus, not California homeowners some of whose homes are in ashes,” said Carmen Balber, executive director of Consumer Watchdog.
Consumer Watchdog, which asked the commissioner to hold a hearing on the June rate increase application, wrote State Farm’s lawyer 14 times between September 13 and January 21 trying to obtain a response to its requests for information.
Now State Farm is asking the Commissioner to immediately approve a 22% increase on an “interim” basis – without having to prove that it needs that increase first.
Absent access to the needed data, Consumer Watchdog’s preliminary calculations show that State Farm would have to pay out roughly $9 billion to justify a 22% increase.
Today Consumer Watchdog once again asked State Farm to provide information that would back up its demand. State Farm has said that it will provide data to the Department and Consumer Watchdog within a couple days, but will press forward with asking the Commissioner to approve a 22% interim rate hike regardless of whether the Department and Consumer Watchdog’s actuaries agree that the data supports it.
“State Farm is required to prove its claims of poverty and financial disaster; it has refused to do so since last September. Now it’s trying to cash in on a terrible tragedy by detouring the rules that protect state consumers from insurance price gouging – at a time when those safeguards are more important than ever,” said Balber. “Insurance Commissioner Lara must require State Farm to prove it needs this staggering increase.”
State Farm’s letter promises the Commissioner that it will make refunds to policyholders if it later turns out that the immediate increase is unwarranted. But State Farm won a court ruling in 2021 that said the commissioner has no power to order State Farm to make refunds.
Facts About State Farm
State Farm General is the California affiliate of State Farm, the nation’s largest home, auto and business insurance company. The parent company has a $134 billion surplus.
State Farm General had direct underwriting profits from homeowners insurance of $1.4 billion between 2020 and 2023. It buys its reinsurance coverage primarily from the parent company and gets little in return. From 2014 to 2023 State Farm paid reinsurance premiums of nearly $2.2 billion, but was only reimbursed $0.4 billion – or less than 20%. A reinsurance return that low is a strong indication that the company is overpaying. State Farm Mutual, the parent company, has stepped in to help subsidiaries in the past, including in Texas.
Read more about State Farm’s reinsurance deal: https://consumerwatchdog.org/insurance/state-farms-shady-reinsurance-deal/
Read more about Consumer Watchdog’s challenge to State Farm’s 30% rate increase request in July 2024.
This is the second time that State Farm has gone directly to Insurance Commissioner Lara to circumvent voter-mandated review procedures. In November, the company tried to get Commissioner Lara to personally okay a 17.7% increase in auto insurance premiums. Consumer Watchdog objected to that tactic as unlawful, and the Commissioner did not agree to State Farm’s request.
