Regulators have given the go-ahead for Mercury General to see premium hikes averaging 12% from March, and for Liberty Mutual subsidiary Safeco to raise by 7.2%. The issue, however, is far from clear for State Farm, California’s largest home insurance provider.
The insurer has warned regulators that it may cancel a significant number of policies if its request for an emergency rate hike is denied. The company met with Insurance Commissioner Ricardo Lara this week to push for an immediate increase in homeowner premiums by 22%, as well as hikes for rental and condo policies, citing massive wildfire-related losses.
State Farm executives made it clear that if the California Department of Insurance does not approve the increases, the insurer may move forward with dropping even more policies, reducing coverage across the state.
During a private meeting with regulators, Mark Schwamberger, CFO of State Farm General, emphasized the severity of the situation, stating, "The ability, prospectively, to continue to stay behind our policies as we enter fire season, it’s in jeopardy, sir, and it’s a very serious situation." He warned that without approval, the company could pursue "significant non-renewals" to limit exposure to wildfire risk.
State Farm has already scaled back its presence in California, pausing new homeowner policies last year and announcing plans to drop 72,000 existing policies. Now, the company is signaling that more cancellations could follow if it does not secure higher rates.
Despite these warnings, State Farm executives admitted that even if the rate hike is approved, they have no immediate plans to resume writing new policies in the state. Lara expressed frustration at the lack of commitment, stating, "I want to see some guarantee that they’re going to come, that they’re going to commit to engage. I didn’t get that."
State Farm claims that its financial stability has been weakened by recent wildfires, which resulted in an estimated $7.6 billion in claims. The company has already paid out $1.75 billion and expects its cash surplus to shrink significantly. It argues that premium hikes are necessary to continue operating in California.
However, consumer advocacy group Consumer Watchdog is threatening any kind of settlement and has pushed back, accusing the company of withholding key financial data. "State Farm is demanding a backroom bailout from California homeowners while concealing critical financial details," said William Pletcher, the group’s litigation director. The continued grandstanding may well cost homeowners, as if politics continues to interfere with business commonsense – Californians will end up being losers.
Under Proposition 103, California law requires public hearings for rate increases above 7% if consumer advocates challenge them. State Farm initially sought a 30% hike last year, and after that request stalled, it filed for an emergency interim increase. Lara rejected that request earlier this month, stating that the company had not provided sufficient justification.
The standoff between State Farm and California regulators leaves millions of homeowners in a precarious position. If State Farm follows through on its threats to cancel more policies, homeowners in high-risk areas may struggle to find new coverage. The state’s insurer of last resort, the FAIR Plan, is already facing strain from the growing number of displaced policyholders.
Lara has vowed to thoroughly review State Farm’s latest request and reach a decision within two weeks. Meanwhile, the company continues to pressure regulators, making it clear that the future of its business in California depends on higher premiums.
For now, homeowners are left waiting to see if they will face rising costs – or risk losing their coverage altogether.
