LOS ANGELES, Feb. 7, 2025 -- Consumer Watchdog has submitted two letters to Insurance Commissioner Ricardo Lara objecting to State Farm's request for an emergency interim rate increase, citing a lack of justification and an attempt to bypass California's strong consumer protection laws.
State Farm is seeking an immediate 22% rate increase for homeowners, along with a 15% increase for renters and condo owners and a 38% increase for rental dwellings—not because it cannot pay wildfire claims, but because it wants to protect its Wall Street credit rating. However, as the letter states, S&P Global rates State Farm and its parent company, State Farm Mutual which has $194 billion in surplus and reserves, together. They have an AA rating, the second-highest possible rating.
Read Consumer Watchdog's Feb 5th and Feb 7th letters.
"Consumers who are struggling to rebuild their lives after the wildfires should not be forced to pay higher premiums to prop up State Farm's bank accounts," said Carmen Balber, Executive Director at Consumer Watchdog. "State Farm has failed to demonstrate that an emergency rate increase is necessary."
Consumer Watchdog's analysis of State Farm's filings found:
- No evidence that wildfire claims will reach the $10 billion State Farm suggests.
- $4.4 billion in reserves and surplus already available to cover claims.
- Up to $9 billion in reinsurance commitments from State Farm's parent company after the company pays $250 million in claims per event, although details remain undisclosed.
- No explanation for why its parent company, State Farm Mutual Automobile Insurance Company, with $194 billion in surplus and reserves, cannot provide support to its affiliate, as happened in Texas.
State Farm's previously pending rate requests can and should be reviewed through Proposition 103's required process, Consumer Watchdog said.
Consumer Watchdog has received reports from consumers who are worried that State Farm will not be able to pay their claims based on the company's request earlier this week for an emergency rate increase. But based on their request, it does not appear that even State Farm itself is making this claim. Instead, State Farm is using its request and the media attention it has received to create an atmosphere of fear—misleading policyholders into believing its financial condition is at risk, when in reality, its primary concern appears to be to protect its Wall Street credit rating.
State Farm Has Not Proven a Financial Emergency
State Farm initially justified its request by citing solvency concerns but has since shifted its rationale to protecting its credit rating. However, only one credit agency has downgraded its rating, while others have refrained, likely expecting the parent company to provide support—just as it did when its Texas affiliate faced financial trouble.
Balber added, "State Farm's affiliate in Texas was supported by the parent company following hurricane and other catastrophe losses – there has been no explanation as to why State Farm would treat California homeowners less fairly than Texas homeowners."
California law under Proposition 103 requires insurers to justify rate increases before they are approved—it does not allow "emergency pre-approvals." Yet State Farm is demanding that the Commissioner approve its rate hikes now and determine whether they are justified later.
"The system is designed to prevent unjustified, panic-driven rate increases," explained Pamela Pressley, Senior Staff Attorney at Consumer Watchdog. "If State Farm were serious about expediting approval, it would follow the proper process and provide the required data—just as other insurers have done."
"The bottom line is that State Farm is entitled to a rate increase only if it can prove—with actuarial data subject to public review—that it is necessary," said Pressley. "We are committed to working on an expedited basis to ensure a viable insurance market, but that requires a process based on facts, not corporate urgency. The Department of Insurance must reject State Farm's request and instead require it to follow the legally mandated review process."
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