State Farm General is looking to dramatically raise home insurance rates for millions of Californians, a move that would deepen the state’s ongoing crisis over home coverage.
In two filings with the state Department of Insurance on Thursday that signal financial trouble for the insurance giant, State Farm revealed it is seeking a 30% rate increase for homeowners, a 36% increase for apartment owners and an increase of 52% for tenants.
“State Farm General’s recent rate filings raise serious questions about its financial condition,” Ricardo Lara, California’s insurance commissioner, said in a statement. “This has the potential to affect millions of consumers in California and the integrity of our home insurance market.”
Lara noted that nothing changes immediately for policyholders as a result of the filings. He said his department will use all its “investigative tools to get to the bottom of State Farm’s financial situation,” including a hearing if necessary, before making a decision on whether to approve the requests. .
That process can take months: The department averages 180 days for its reviews, and complex cases can take even longer, according to a department spokesman.
The department has already approved State Farm’s latest requests for significant home insurance rate increases, including a 6.9% increase in January 2023 and a 20% increase that took effect in March.
The company’s attempt to significantly raise home insurance rates requires using a little-known and rarely used exception to the state’s usual formula for getting insurance rates. Typically, such a move signals that an insurance provider is facing serious financial problems.
In one of the filings, State Farm General said the purpose of its request was to restore its financial condition. “If the discrepancy is denied,” the insurer wrote, “further deterioration of the excess is anticipated.”
The insurance provider provided additional details Friday, saying it was “working toward its long-term viability in California.”
“The rate changes are driven by increasing costs and risk and are necessary for State Farm General to deliver on the promises the company makes every day to its customers,” the company said in a statement. “We continue to look for ways to maintain competitive rates.”
California is facing an insurance crisis as climate change and extreme weather contribute to catastrophic wildfires that have destroyed thousands of homes in recent years.
In March, State Farm announced that it would not be renewed 72,000 homeowners policies nationwide, joining Farmers, Allstate and other companies in either not writing or limiting new policies, or tightening underwriting standards.
The companies blamed the fires, inflation that drove up rebuilding costs, higher prices for the reinsurance they buy to boost their balance sheets and protect themselves from catastrophes, and outdated state regulations — claims disputed by some consumer advocates.
The lack of options has led thousands of Californians to buy insurance from the FAIR Plan as a last resort. Funded by insurers doing business in the state, the Fair Access to Insurance Claims plan offers more limited coverage as an alternative for property owners who are unable to find conventional policies they can afford.
As insurers have pulled out of the homeowner market, lawmakers in Sacramento are trying to make coverage available and affordable for residents living in high-risk areas.
Last fall, Lara announced his Sustainable Insurance Strategy, a package of executive actions designed to reform the industry.
The new regulations are expected to be in effect by the end of the year and mark the biggest overhaul of industry regulations since the passage of Proposition 103 in 1988, which gave an elected insurance commissioner the authority to review and deny applications for increased rates from insurers that offer homeowners, auto and other lines of coverage.
This month the Department of Insurance released a list of wildfire-prone ZIP codes affected by the proposed regulations. ZIP codes include neighborhoods in Malibu, Beverly Hills, Topanga, Bel-Air, Beverly Glen, Duarte, Castaic and Catalina Island.
Denny Ritter, division vice president of the American Property Casualty Insurance Assn., a trade group for insurers, said Friday that “the state’s outdated insurance regulatory framework is failing consumers.”
“Current market disruptions demonstrate the urgent need for comprehensive reforms,” she said in a statement. “Insurers remain committed to working closely with Commissioner Lara to implement his Sustainable Insurance Strategy to help restore health and access to California’s insurance market.”
Times staff writer Laurence Darmiento contributed to this report.