California’s largest property insurer, State Farm, started an emergency hearing on Tuesday to increase its rates for homeowners and renters, a move the company says is necessary due to the enormous losses caused by the wildfires in Los Angeles County.
If the insurer’s request is approved by the California insurance commissioner, State Farm could hike its insurance rates by as much as 38 percent.
Newsweek contacted the California Department of Insurance and State Farm for comment by email on Wednesday morning.
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Why It Matters
Several major property insurers operating in California, including State Farm, have significantly cut coverage across the state over the past five years, citing rising costs and growing catastrophe exposure.
The lack of availability in the private market has left many homeowners to fend for themselves, while the state’s fire insurer of last resort, the California FAIR Plan, has ballooned in size.
State regulators, who have so far kept insurance rates artificially low, are now trying to increase competition in the market while shielding homeowners from large price increases.
What To Know
The wildfires in Los Angeles County in January killed 30 people and destroyed thousands of homes and businesses, according to The Los Angeles Times.
A recent UCLA study estimates total losses from the Palisades and Eaton fires—the largest blazes in January—to reach up to $131 billion, including $45 billion in insured losses.
Following the fires, State Farm asked for an emergency rate increase of an average 17 percent for homeowners, 15 percent for renters, and up to 38 percent for rental dwellings, citing growing costs for the company due to thousands of claims it received.
While the request was “provisionally approved” by the California Department of Insurance (CDI) in February, a final decision still has to be taken.
Under Proposition 13, which regulates the California insurance market, companies need to prove they need rate increases—something that State Farm has been reluctant to do.
During the public hearing in Oakland that kicked off on Tuesday, State Farm said the rate hikes are needed to rebuild the company’s capital and shore up its stability after the fires.
On Tuesday, State Farm testified that its surplus dropped from $4 billion in 2015 to $1 billion in 2024, and it is now projected to drop to $600 million as a result of the recent wildfires.
Last year, the company had already asked for a 30 percent rate increase, which the CDI is still considering.
Not everyone thinks State Farm’s rate hikes are justified. Consumer Watchdog, a consumer advocacy group that attended the hearing on Tuesday, said the insurer has so far not presented any hard evidence that the increases are justified.
Will Pletcher, an attorney for Consumer Watchdog, urged the court “to not let this hearing become a bailout for bad business decisions.”
Ricardo Lara, California’s insurance commissioner, will ultimately decide whether State Farm will be allowed to implement the requested rate hikes or not. Lara did not attend the hearing in Oakland, but the judge presiding over the hearing, Karl Frederic Seligman, works under the CDI and is expected to brief the commissioner on the case and issue a formal recommendation.
Lara has previously urged State Farm to expand coverage in exchange for the approval of its requested rate hikes.
What People Are Saying
State Farm counsel Katherine Wellington said on Tuesday: “These rate increases will help State Farm stabilize and rebuild its surplus to continue to be there for its policyholders. Rate increases were needed before the Los Angeles wildfires, and rate increases are certainly needed now. More wildfires like the ones that happened in Los Angeles could happen at any time.”
State Farm said in a statement on its website: “Insurance will cost more for customers in California going forward because the risk is greater in California. Immediate emergency interim approval of additional rate is essential to more closely align cost and risk and enable State Farm General to rebuild capital. We must appropriately match price to risk. That is foundational to how insurance works. Higher risks should pay more for insurance than lower risks.”
CDI attorney Nikki Kennedy said on Tuesday: “It is not in California consumers’ best interest to allow State Farm General, the largest property insurer in California by far with 20 percent market share, to go bankrupt or to otherwise withdraw from the California market.”
Ricardo Lara said in a statement issued in February: “Despite multiple approved rate changes, State Farm has stopped writing new policies in California and non-renewed thousands of existing policies, raising serious questions about its financial situation. […] Under the strict review laid out by Proposition 103, the burden is on State Farm to show why this is needed now. State Farm has not met its burden.”
Will Pletcher said on Tuesday: “We would argue as a matter of policy that State Farm cannot rely on its financial condition to justify a rate increase.”
What’s Next
The hearing is expected to resume today, April 9. If approved, the interim rate hike would come into effect on June 1 and impact thousands of people across California.
Despite a recent spate of non-renewals, State Farm remains the largest property insurer in California, with around one million policies in the state, according to the Associated Press.