LOS ANGELES, Feb. 26, 2025 -- Following today's meeting with California Insurance Commissioner Ricardo Lara, State Farm General Insurance (SFG), and the California Department of Insurance (CDI), Consumer Watchdog reiterated its opposition to State Farm's unprecedented request for an emergency rate increase, calling it an unjustified attempt to shift the burden of financial mismanagement onto California policyholders.
At issue is State Farm's request for an emergency interim rate increase across multiple lines of insurance, impacting millions of California homeowners and renters—including an average of $600 per homeowner policy. If approved, the increase would take effect May 1, 2025, before a full hearing is conducted to determine whether such an increase is justified.
"State Farm is demanding a backroom bailout from California homeowners while concealing critical financial details," said William Pletcher, Litigation Director at Consumer Watchdog. "Today's meeting confirmed that State Farm's financial troubles stem from its own mismanagement and its decision to overextend its risk portfolio, not from any legitimate emergency justifying an immediate rate hike. Pletcher added, "State Farm is benefitting from risky fossil fuel investments that are increasing the odds of the same risks it promises to insure; these issues need to be fully examined."
Consumer Watchdog said State Farm Mutual (SFMAIC), the parent company of State Farm General the California home insurer, had $144 billion surplus and should step in if needed. State Farm General paid $2.1 billion for reinsurance over the past decade, most of it to the parent company. State Farm General also sent nearly $1 billion in utility repayments for the 2017-18 California wildfires out of state and back to the parent, instead of using those funds to offset wildfire losses. "If the parent company returned that $1 billion in utility wildfire reimbursements to State Farm General it would double the company's surplus overnight," said William Pletcher.
Read Consumer Watchdog's February 26, 2025, informal hearing memorandum here.
"We were encouraged that Commissioner Lara indicated that a full rate hearing is still 'on the table,'" Pletcher explained. "A full rate hearing, even on an expedited basis, will provide California consumers with the protections afforded to them under Proposition 103 when the Commissioner considers a rate increase, especially a large increase like this one that follows other State Farm increases. This proposed increase would be about $600 per homeowners policy per year – this is a large amount and a critical issue for California consumers."
Consumer Watchdog, a longtime advocate for transparency and fairness in insurance rate-setting, argued that State Farm has failed to prove the necessity of an emergency increase. Proposition 103 requires full public scrutiny of rate increases exceeding 7%, and the organization warned that allowing a rate hike before a complete review would set a dangerous precedent for California's insurance market.
"Consumers who are struggling to rebuild their homes and lives after the wildfires should not be forced to pay unjustified higher premiums to prop up State Farm's credit rating," said Pletcher. "We are always willing to work on an expedited basis to ensure a fair and transparent process that complies with the law, but State Farm has failed to demonstrate that an emergency rate increase is necessary."
State Farm's Mismanagement is Not an Emergency
Consumer Watchdog's preliminary analysis found that despite receiving multiple rate increases totaling 52.1% since 2014, State Farm's surplus has continued to decline. The company claims it needs immediate relief due to inadequate rates, but its own financial decisions tell a different story:
- Consumer Watchdog's review of State Farm's initial financial disclosures reveals that the company's supposed distress is largely self-inflicted, stemming from questionable reinsurance practices that benefited its corporate parent at the expense of California consumers.
- The parent company, with over $144 billion in surplus, has not provided financial assistance, despite doing so in other states.
- The company ignored Consumer Watchdog's requests for data and documentation to support State Farm's claimed financial condition for over six months, failing to justify its so-called emergency.
- The $1 billion in wildfire subrogation recoveries State Farm General sent out of state to the parent company as part of its reinsurance agreements.
"If State Farm were truly in crisis, it had ample time to act with urgency," said Pamela Pressley, Senior Staff Attorney at Consumer Watchdog. "Instead, it stalled, then declared an emergency at the last minute to pressure regulators into approving unjustified rate hikes."
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 SFMAIC to provide support—just as it did when its Texas affiliate faced financial trouble. "State Farm's affiliate in Texas was supported by SFMAIC 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," added Carmen Balber, Executive Director at Consumer Watchdog.
A Dangerous Precedent for California Consumers
Granting an "emergency" rate increase under these circumstances would set a dangerous precedent, allowing insurers to manufacture financial crises to evade Proposition 103's consumer protection laws. It would encourage companies to delay filings, transfer funds to parent companies, and then declare financial distress to force through unjustified rate hikes.
"California law is clear: Insurers must justify rate increases in a public, transparent process, before they can be approved," said Harvey Rosenfield, Consumer Watchdog's founder and author of Proposition 103. "If State Farm truly needs more revenue, it must provide full transparency into its financial practices—including its reinsurance deals and surplus depletion—before any rate increase is considered."
State Farm's Request Violates Proposition 103 and Attempts to Bypass Consumer Protections
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 Pressley. "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."
Consumer Watchdog's Commitment to a Fair and Expedited Process
"Consumer Watchdog strongly supports efforts to stabilize the insurance market and expedite rate review when justified. That is why we stand ready and willing to work with all stakeholders to ensure a process that protects consumers while maintaining a functioning insurance system," explained Pressley. "However, State Farm's failure to provide the necessary justification for its rate hike is not an emergency—it is an attempt to sidestep the law."
"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 ensuring a viable insurance market, but that requires a process based on facts, not unsupported claims of corporate urgency. The Department of Insurance must reject State Farm's request and instead require it to follow the legally mandated review process."
Read Consumer Watchdog's February 7, 2025 letter regarding State Farm's emergency rate request to Commissioner Lara here.
Read Consumer Watchdog's February 19, 2025 letter regarding the Insurance Commissioner's non-public, closed door meeting regarding State Farm's emergency rate request to Commissioner Lara here.
Read Consumer Watchdog's February 26, 2025, informal hearing memorandum here.
Consumer Watchdog remains ready to work on an expedited basis to ensure fair rates, protect consumers, and promote a stable insurance market—but not at the expense of transparency, accountability, and the protections guaranteed under Proposition 103.
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