Just months after its latest rate hike went into effect, California’s largest insurance provider is looking for another big increase.
Earlier this week, State Farm’s California branch filed a request with the Department of Insurance to raise its rates by an average of 30% for homeowners, 52% for renters and 36% for apartment owners.
It marks the latest escalation in California’s home insurance crisis, which has seen a slew of insurance providers issue dramatic rate hikes, freeze new policies or leave the state entirely. Insurance industry experts have described the state of California’s insurance industry as a “ticking time bomb” with a mass exodus of carriers severely straining the state’s “insurer of last resort,” which offers only bare bones coverage.
State Farm itself stopped issuing new policies to homeowners last year and left people scrambling when it announced in March that it would not renew roughly 70,000 existing policies, citing inflation and increased disaster risks. Shortly thereafter, a credit rating agency for insurance companies, AM Best, downgraded State Farm’s financial outlook to “negative.”
The proposed new increase represents “another seismic premium hit,” said Joel Laucher, program specialist at United Policyholders, a SF-based nonprofit that advocates for insurance consumers.
If granted, State Farm’s latest rate hike request would take effect when people renew their policies in 2025 and would represent its biggest increase in at least seven years, according to the SF Chronicle, which reported on first time the news. Meanwhile, the provider recently raised home insurance rates by 20% in March, affecting more than 5 million Californians.
Fast-track enrollment depends on state legislation that allows insurers to charge premiums higher than normally allowed “to protect the insurer’s solvency.”
The Insurance Department, which is charged with evaluating rate hike requests, said in a statement that it has “serious questions” about the requests and plans to investigate State Farm’s financial situation using all of its “tools investigative”.
State Farm had a loss ratio of nearly 90% in California last year (meaning it paid out about $90 out of every $100 it collected in premiums). The overall market in California had a loss ratio of 68%.
With this fee request, the company is “working toward its long-term sustainability in California,” spokeswoman Gina Morss-Fischer said. “Rate changes are driven by increased costs and risk,” she said, and are necessary “to fulfill the promises the company makes every day to its customers.”
The insurer’s proposed rate increases “raise serious questions about its financial condition,” Insurance Commissioner Ricardo Lara said in a statement. “This has the potential to affect millions of consumers in California and the integrity of our home insurance market.”
The Department’s review can take months and may include hearings and intervention from consumer advocacy groups. The company will essentially have to prove to the department that its rate increases are financially necessary.
The required rate increase is “insanely high,” according to Karl Susman, president of Susman Insurance Agency in Los Angeles and an industry expert. But the Department likely “will have no choice but to approve it” if State Farm proves it needs the money to survive, he said. Meanwhile, consumers are “stuck” because they have no good alternatives given the departure of other providers.
“It’s a perfect storm because the timing couldn’t be worse,” Susman said. The state government should move faster to fix its rules and processes to bring back other carriers, he added. For example, earlier this year, Gov. Gavin Newsom introduced a controversial bill that could speed up the state’s review and approval process for rate hikes.
“However this happens, it makes it clear that affordable homeowners insurance for California consumers may not be part of our future financial landscape,” said Laucher of United Policyholders. “At least in the near future.”