Another Blow To CA Living Costs As Major Rate Hike Looms

CALIFORNIA — California Insurance Commissioner Ricardo Lara has provisionally approved State Farm’s request for a significant and emergency increase in homeowners’ insurance rates, citing the financial strain caused by devastating wildfires across the state.

Lara said Friday that he will grant the state's largest homeowners insurer to raise home insurance premiums by an average of 22% if the company can win approval at a public hearing next month and can meet other strict conditions.

"State Farm claims it is committed to its California customers and aims to restore financial stability. I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers. The facts will be revealed in an open, transparent hearing."

Lara says State Farm must also halt canceling and not renewing policies through the end of the year.

“Currently, too many Californians live in fear of having their insurance policies non-renewed. This anxiety perpetuates misinformation and discourages consumers from accessing their entitled benefits," Lara said. "This situation is unacceptable."

He is also calling on the state's parent company, State Farm Mutual, to give or lend State Farm $500 million to improve its financial standing.

The news comes as the insurer told Lara's office that the devastation of the Southern California wildfires has weakened the company financially.

"The role of Insurance Commissioner involves balancing a stable and sustainable insurance market that serves consumers with effective oversight. To ensure long-term choices for Californians, I had to make an unprecedented decision in the short term."

If State Farm is successful at the hearing, here's how much rates will rise:

• 21.8 percent for non-tenant homeowners
• 15 percent for tenants (renters)
• 15 percent for tenants (condominium unit owners)
• 38% for rental dwelling.

Under California law, insurers that request rate increases of more than 7 percent must go through a hearing. Lara's office says such rate increases authorized under Proposition 103 are "extremely rare." State Farm was also the subject of the state's last rate hearing in 2015, Lara's office said.

"The provisional nature of today’s decision does not improve that certainty but it’s a step in the right direction.” State Farm spokesperson Sevag Sarkissian told CalMatters.

The rate hearing is likely to hear objections from those opposed to such hikes.

Consumer Watchdog, an advocacy group, has filed a challenge against State Farm's recent rate requests, CalMatters reported.

"...insurers are doing far better financially than they would have us believe," Consumer Watchdog said in blog post. "Insurance companies have been raking in premiums paid diligently by consumers for decades, and rate hikes intensified in California and across the country in recent years as insurance companies prepared for just such a disaster."

The group sent a letter to California Insurance Commissioner Ricardo Lara on March 6, presenting new evidence — including a candid camera video of a company executive — demonstrating why State Farm should be denied an emergency 22% rate increase.

The executive, Haden Kirkpatrick, Vice President of Innovation and Venture Capital at State Farm, was heard on a recording suggesting that State Farm is deliberately using cancellations and the threat of such to pressure California's insurance department into approving rate hikes.

"We’ll go to the Department of Insurance and say we’re overexposed here, you have to let us catch up our rating… and they’ll say ‘eh’ because the Department of Insurance and the Insurance Commissioner is an elected position in California. He’ll say ‘nah.’ And we’ll say, ‘Okay, then we are going to cancel these policies,’” Kirkpatrick is heard saying.

Kirkpatrick was fired by State Farm after a video and recording went public.

“These remarks strongly suggest that policy cancellations are being wielded as a strategic bargaining tool rather than as a necessary response to financial risk,” Consumer Watchdog Litigation Director Will Pletcher wrote in the letter to Lara. “This contradicts the impression State Farm sought to convey at the meeting — that it would remain in the market if rate relief were granted, and calls into question the transparency and good faith of State Farm’s dealings with both regulators and policyholders.”

Ultimately, the group applauded Lara's decision to hang conditions on the requested rate hikes and to force State Farm to make its case in a public hearing.

“It’s a victory for consumers that State Farm will have to make its case in a public hearing before an [administrative law judge], and the judge will decide if a rate hike is justified,” said Carmen Balber, executive director of the group, told CalMatters.