California Insurance Commissioner Ricardo Lara (pictured above) has said that State Farm General Insurance Co. has not provided sufficient evidence to justify emergency property rate hikes ranging from 15% to 38%, according to a report from AM Best.
In a letter dated Feb. 14, Lara questioned why the company, a subsidiary of State Farm, had not sought assistance from its mutual group and requested further clarification on how rate increases might affect decisions regarding nonrenewals or new business.
Lara’s letter also raised concerns about the company’s significant decrease in policyholder surplus, despite the absence of catastrophic losses from wildfires in 2022 and 2023. He asked State Farm to explain how it had managed the surplus between May 2023 and the present and what measures had been taken to address its financial position, particularly given the company's statement that rate hikes alone would not be enough.
While acknowledging the losses incurred from the catastrophic wildfires in January, Lara rejected recommendations from the California Department of Insurance staff for interim rate approval.
State Farm General, which is seeking immediate approval for rate increases, cited losses of $1 billion following the January wildfires in Los Angeles, with expectations that those costs will rise significantly.
In a Feb. 3 letter, the company also raised its participation in the California FAIR Plan, which sought a $1 billion assessment to cover its claims. Lara approved this request on Feb. 11.
State Farm was the largest homeowners multiperil writer in California in 2023, with a market share of nearly 20%. The FAIR Plan assessment is based on an insurer's market share of dwelling and commercial policies from two years prior, with member companies receiving their share of the assessment split between the 2024 and 2025 pool years. Property & casualty insurers can recoup up to half of the assessment through a temporary fee levied on policyholders, though the California Department of Insurance has stated that these costs cannot be passed on to consumers in future rates.
The proposed rate hikes, which State Farm anticipates taking effect on May 1, cover four lines of coverage -- 38% for rental dwelling, 22% for non-tenant homeowners, 15% for tenant renters, and 15% for tenants in condominium units. The interim rate hikes are lower than the full increases requested in mid-2024, as State Farm seeks expedited approval.
State Farm General has reported over 8,700 claims from the January wildfires as of Feb. 1, and expects the total cost to further deplete its capital reserves. Despite reinsurance from State Farm Mutual Automobile Insurance, the company's capital has been significantly reduced, according to the report.
