A Rate Hike Is Coming For CA Homeowners, Renters: What To Know

CALIFORNIA — State Farm just gained the authority to raise rates for homeowners and renters beginning next month — a historic first, as it is the first insurer to win approval for an emergency rate hike in California.

The state's largest insurer will be able to raise rates by 17 percent for homeowners after it requested the rate hike earlier this year, citing financial turmoil following the devastating Los Angeles fires, which spurred $7 billion in claims for State Farm.

Approval was first granted to the insurer by a judge who oversaw a three-day hearing, who deemed that “State Farm is experiencing extraordinary financial distress, coupled with surplus depletion that threatens ongoing business operations.”

The decision was officiated with Insurance Commissioner Ricardo Lara's signature on Tuesday.

Beginning June 1, State Farm can raise its rates an average 17% for homeowners, 15% for renters and condominiums and 38% for rental dwellings, according to Lara's office.

“Californians deserve a process grounded in fairness, transparency, and integrity — not politics or posturing. That is why I requested an independent review of the evidence by an administrative law judge," Lara said Tuesday.

"Let me be clear: We are in a statewide insurance crisis, affecting millions of Californians. Taking this on requires tough decisions. This is not a game. This is not a media-driven moment for some to exploit — this impacts people I am committed to protecting," he continued.

The 38-page decision by administrative law judge Karl-Fredric Seligma was released Tuesday.

“Taken as a whole, it represents a fundamentally fair, adequate, and necessary measure — effectively functioning as a rescue mission to stabilize State Farm’s financial condition while safeguarding policyholders,” Seligman wrote.

Seligman also said that the insurer will still be required to prove its case for the original rate-increase requests it submitted last year. A full rate hearing may begin in October, so the insurer can prepare for it.

“A full rate hearing serves as a critical signal to the marketplace that emergency rate requests of the type State Farm advanced are serious (and) will undergo rigorous scrutiny,” Seligman wrote.

Consumer Watchdog, an advocacy group that previously filed a challenge against State Farm's March rate requests, issued a statement on the approval.

“Today’s decision that would make consumers pay now but allow State Farm to wait months before having to show its math is a great disappointment for consumers,” said Carmen Balber, executive director of Consumer Watchdog. “Voter-approved Proposition 103 says a rate hike shouldn’t come before the rate justification, but that’s what happened here,” Balber added.

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.

Originally, State Farm had requested a 22 percent rate hike for homeowners when it made its case to Lara's office on March 13, but had to amend that figure. Before sending the insurer to a hearing, Lara called on the state's parent company, State Farm Mutual, to give or lend State Farm $500 million to improve its financial standing.

Lara also called on State Farm to halt canceling and refusing to renew 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 in March. "This situation is unacceptable."

With Tuesday's decision, the company will get an "immediate" $400 million from its parent company and is forbidden from issuing any new block non-renewals through the end of 2025.

The approval comes just days after Lara faced a barrage of complaints about the insurer from fire survivors in LA County, some of whom pleaded with the commissioner not to allow the company to raise its rates.

More than 200 survivors of the Palisades and Eaton fires attended a community meeting over zoom, many of which complained about State Farm's delays in processing their claims, roadblocks to testing toxic substances and insufficient money to fix damaged homes and replace those destroyed by flames.

Tuesday's agreement guarantees refunds if the rate is ultimately proved to be excessive.

“Refunds will be too little too late for homeowners who are already struggling to pay their home insurance premiums,” Balber said Tuesday.

READ MORE: CA Could Launch Investigation Of State Farm Amid LA Fires

On Saturday, Joy Chen, leader of the Eaton Fire Survivors Network, asked Lara not to grant the insurer a rate hike until a full investigation of the complaints is complete.

But Lara said he could not consider those complaints for the rate hike decision.

"Lara’s most important job is to protect California families, but he is saying the department does not consider claims management when approving rate hikes — but this is one of the few legal powers he actually has to regulate the industry,” she told the Los Angeles Times.

When addressing complaints on Saturday, Lara signaled that an investigation into State Farm General’s handling of the LA fires could happen. In his statement announcing State Farm's approval on Tuesday, Lara hinted at it again: "I am focused on ensuring that State Farm pays its claims to wildfire survivors fully and fairly – and nothing is off the table."