State Farm could get the green light soon to raise premiums on California homeowners following public hearings this week, during which the insurance giant argued it needed the price hikes to restore financial stability.
An attorney for the California Department of Insurance described State Farm’s situation as “dire,” likening it to the Titanic, but adding that there was still a window of time to right the ship.
“If we don’t, 3 million Californians are going into the water, and there are not enough lifeboats,” attorney Nikki McKennedy warned.
The three-day hearings were held to determine whether State Farm could move forward with a compromise to implement a 17% hike for homeowners, a 15% rise for condo owners and renters, and a 38% increase for rental dwellings, a type of insurance for landlords who rent out their homes. The price increase came in addition to an average 20% rate hike that customers started seeing in March 2024.
The rates are expected to be approved. However, a final hearing, which will be held sometime in the future, will determine the insurance company’s ultimate rates.
The raging wildfires that ripped through Los Angeles earlier this year caused an estimated $250 billion to $275 billion in total damages. State Farm corners about 20% of California’s homeowners market with nearly 3 million policies.
So far, the insurer has paid out nearly 12,400 claims as a result of the fires and estimated direct losses to be $7.6 billion.
In February, the insurer requested that insurance regulators approve 22% rate hikes on homeowners. It has since lowered its request to a 17% increase. Attorneys for State Farm said at the hearing that it also agreed to seek $400 million in funds from its parent company if the rate increases are approved.
California’s home insurance market has been in turmoil in recent years. Several major insurers, including State Farm, Allstate, and Farmers, have either reduced or halted new policies due to risks from wildfires and state-imposed limitations on premium increases.
If State Farm and other companies leave California, millions of people without policies will likely turn to the state’s FAIR Plan, California’s last resort property insurer. However, the FAIR Plan has its own problems, including new lawsuits filed this week, and is at risk of running out of money.
