Consumer Watchdog has called on California Insurance Commissioner Ricardo Lara to convene a public hearing regarding State Farm’s proposed 30% hike in homeowners’ insurance rates.
The advocacy group argues that the increase is intended to bolster the insurer’s overall financial health rather than cover expected claims. Consumer Watchdog claims the unprecedented proposal could result in a $5.2 billion burden on policyholders over the next four years.
“Under the law, an insurance company must open its books and prove that its financial condition warrants forcing policyholders to bankroll the company,” Consumer Watchdog executive director Carmen Balber stated. “And the company must show that it will repay policyholders. State Farm has done neither so far.”
Consumer Watchdog’s petition raises concerns about the financial practices of State Farm’s California operations, alleging that the subsidiary is funneling profits out of state by overpaying the parent company for reinsurance and services.
Proposition 103, the 1988 insurance reform initiative, mandates a hearing on rate increases when requested by the public.
In its petition, Consumer Watchdog declared: “The additional $1.3 billion a year for at least four years, or at least $5.2 billion in total, [State Farm General] wants to collect from its California policyholders would be used to ‘re-capitalize’ the company – in other words, to purportedly rescue the company from what State Farm describes as a deteriorating financial condition.
“However, State Farm has failed to adequately support its purported need for such an extraordinary bailout by policyholders, especially in light of State Farm’s parent company’s $100-plus billion surplus in recent years.”
The citizen organization also pointed out that State Farm’s rate increase application acknowledges that, according to the standard regulatory formula, the company would need to lower its rates by at least 9.2%. Instead, the insurer is pursuing a 30% increase to “protect its solvency.”
Consumer Watchdog’s experts reviewed public information suggesting that State Farm might have manipulated its financial situation to create the illusion of needing a bailout. This was allegedly done by transferring profits out of California as reinsurance payments to its Illinois-based parent firm.
The group went on to highlight: “State Farm’s application for a 30% increase comes just four months after a prior 20% ($471 million) increase in its home insurance rates took effect.
“State Farm General is California’s largest home insurance company, insuring approximately 20% of the homeowners’ insurance market, and its parent company, State Farm Mutual Automobile Insurance Company, is the nation’s largest insurance company by premium dollars, with a surplus of $134 billion at the end of 2023.”
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