California Insurance Commissioner Ricardo Lara approved State Farm General Insurance Co.’s request for interim rate increases ranging from 15% to 38%, following the recommendation of Administrative Law Judge Karl-Fredric Seligman.
Judge Seligman said shifting recapitalization costs to policyholders is unfortunate but necessary. He called the rate increase legal and practical under the current financial strain on State Farm’s homeowners business.
His decision followed a multi-day Department of Insurance hearing in April, which included evidence on State Farm’s financial position, current pricing, and wildfire losses from January in Los Angeles.
The interim rates will apply to new and renewal policies starting June 1. A full rate hearing is set for October. The judge clarified that his ruling did not endorse State Farm’s data or methods but allowed the increases as a short-term measure.
Lara emphasized that California is facing a serious insurance crisis affecting millions. He described the rate approval as a tough but necessary step to protect consumers and preserve insurer solvency.
I am balancing all the facts. Protecting all State Farm customers and the integrity of our insurance market is an urgent matter
“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,” Lara said.
The approved increases include 17% for non-tenant homeowners, 15% for renters and condo tenants, and 38% for rental dwellings. State Farm must also secure a $400 mn surplus note from its parent company to improve its capital base.
As part of the deal, the company agreed to reduce its initial 21.8% request to 17% for homeowners and pause new policy nonrenewals through the end of the year.
The interim rate approval includes a condition: if the final rate request is withdrawn, or if any premiums collected under the interim rates are deemed excessive, State Farm must fully refund the difference with interest. A final review will be held during the rate hearing later this year.
State Farm thanked the commissioner in an email, saying it must continue to build up capital and repay the $400 mn surplus note. The company stated that policyholders outside California should not bear the burden of California-specific risks. It will proceed with the permanent rate request and continue to assess its position.
Consumer Watchdog, a group that took part in the hearing, criticized the decision. Executive Director Carmen Balber argued that under Proposition 103, rates should not increase before being fully justified.
She urged Lara to reject the judge’s ruling to prevent overcharging policyholders still waiting on payouts from wildfire claims.
Voter-approved Proposition 103 says a rate hike shouldn’t come before the rate justification, but that’s what happened here” because SFG will collect on the higher rates for months before needing to “show its math.
Carmen Balber, executive director of intervenor Consumer Watchdog
State Farm reported paying over $3.51 bn on more than 12,692 wildfire-related claims as of May 12. However, some policyholders have accused the company of mishandling claims from the Eaton and Palisades fires.
Balber said raising rates while customers are still recovering adds to their hardship, especially when some have unresolved claims. Lara responded that ensuring full and fair payment of claims remains a top priority and all options remain on the table.
During the hearing, Consumer Watchdog succeeded in limiting the use of rate-based capital evidence. Judge Seligman allowed the motion, saying the evidence could only be used for solvency review outside the rate-setting process.
