California’s top insurance regulator has approved State Farm’s request for a 17% premium increase for all of its home insurance customers in the state.
The premium hike is aimed at helping State Farm rebuild its capital following the devastation caused by the Los Angeles wildfires earlier in the year.
The big picture: State Farm argued that the rate hikes were necessary to prevent a financial crisis that could lead to dropping more policyholders in California.
- The increase will apply to approximately 1 million homeowners insured by State Farm in California.
- Last year, Insurance Commissioner Ricardo Lara introduced regulations to make it easier for insurance companies to raise premiums in high-risk areas, in an effort to encourage insurers to continue doing business in the state amidst the increasing wildfire risks.
- State Farm initially requested a 22% rate increase for homeowners but revised it to 17% during a recent administrative hearing. The new rates are set to take effect in June.
- Furthermore, rental owners will see a 38% rate hike, while tenants will face a 15% increase in premiums.
Go deeper: In exchange for these rate hikes, State Farm will receive a $400 million cash infusion from its parent company and will also pause some nonrenewals until the end of the year.
- Administrative Judge Karl Frederic Seligman supported State Farm’s request, referring to it as a “rescue mission” to stabilize the insurer’s financial condition and safeguard policyholders.
- The new rates are temporary until a further review of State Farm’s request for a 30% rate increase for homeowners, scheduled for hearings in October.
- State Farm plans to provide refunds if approved lower rates by California in the future and had received approval for a 20% rate increase in December 2023.
