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By Martha McHardy
US News Reporter
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California insurance regulators are urging insurance provider State Farm to expand coverage in exchange for rate hikes after the recent wildfires.
Newsweek has contacted State Farm for comment via email.
Why It Matters
Wildfires in Los Angeles last month burned more than 47,900 acres, destroyed more than 16,250 homes and businesses, and killed 29 people.
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Amid the destruction, tens of thousands of people have made insurance claims to State Farm—the state's largest home insurance provider—equating to millions of dollars. But the company has said it needs to implement rate hikes in order to pay all the claims and avoid a "dire situation."
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What To Know
California Insurance Commissioner Ricardo Lara met with State Farm executives in Oakland on Wednesday to discuss the company's emergency request for a rate hike and its future in the state.
State Farm has requested a 22 percent statewide increase for homeowners, 15 percent for renters and condo owners, and 33 percent for rental owners to offset expected $7.6 billion in wildfire-related losses.
While Lara said he hopes to make a decision within two weeks, he also pushed for assurances that State Farm would expand coverage in California if allowed to raise rates.
In recent years, State Farm has scaled back coverage in fire-prone areas and paused new policies.
In April 2024, the company revealed plans to discontinue 72,000 policies statewide, including 30,000 homes, according to KABC in Los Angeles. Among those affected, about 1,600 homes in Pacific Palisades lost coverage as a result of the decision.
The cancellations followed State Farm's announcement nine months earlier that it would stop issuing new homeowners' policies in California. At the time, the company said that while it supported the state's "wildfire loss mitigation effort," the decision was "necessary to take these actions now to improve the company's financial strength."
In March 2024, State Farm Vice President Denise Hardin addressed the matter in a letter to Lara. She acknowledged the difficulty of the decision, describing it as one made "reluctantly" but was necessary to secure the company's future in the face of growing risks.
But now Lara says that if the company wants to raise rates, it needs to guarantee it will "continue to grow their footprint and stay in California."
In a brief statement, State Farm said Wednesday's meeting was an "opportunity to reiterate" to the commissioner the "urgency needed" to approve the increases. The company did not immediately provide a response to Lara's calls for guarantees to expand coverage.
State Farm's request to make consumers pay more for home insurance comes amid concerns about the company's financial strength after the Los Angeles wildfires.
The company said that once it pays out claims from the Los Angeles fires, it expects its cash surplus to drop from $1.04 billion at the end of 2024 to $600 million. Meanwhile, on Tuesday, S&P Global Ratings threatened to downgrade the insurer's credit rating, indicating that State Farm's financial stability is weakening, making it riskier for investors and potentially increasing the company's borrowing costs.
But Los Angeles-based Consumer Watchdog, an advocacy group that has filed a challenge to the rate requests with the insurance department and also took part in the private meeting, said State Farm has failed to prove the hikes are warranted, accusing the company of "concealing critical financial details."
Consumer Watchdog told Newsweek earlier this month: "It's not fair for State Farm to pad its bank account on the backs of homeowners who may have just lost everything."
State Farm's latest request to regulators comes after seeking a 30 percent rate increase in June, citing financial instability. At the time, the company requested a "variance" from the insurance department to raise premiums beyond typical limits. With that request still pending, State Farm then asked regulators to approve an emergency "interim" hike after the fires. That request was initially turned down after Lara said State Farm had not demonstrated a need for the increase nor clarified how the extra revenue would affect its decision to stop issuing new home policies in California.
If approved, the new rates would have taken effect on May 1.
What People Are Saying
California Insurance Commissioner Ricardo Lara: "I want to know that if State Farm consumers are going to be asked to pay more, that we get some guarantees that [State Farm officials] are going to continue to grow their footprint and stay in California."
William Pletcher, litigation director at Consumer Watchdog: "State Farm is demanding a backroom bailout from California homeowners while concealing critical financial details."
State Farm, in a statement on its website: "Insurance will cost more for customers in California going forward because the risk is greater in California. Immediate emergency interim approval of additional rate is essential to more closely align cost and risk and enable State Farm General to rebuild capital. We must appropriately match price to risk. That is foundational to how insurance works. Higher risks should pay more for insurance than lower risks."
What Happens Next
Details of the meeting between Lara and State Farm executives have not been released. Lara said he would release a transcript on Thursday. Lara has said he will decide on State Farm's request for rate hikes in the next two weeks.
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