State Farm is expected to increase its average rate for homeowner insurance policies in California by 20% this year, under a proposal approved by the Department of Insurance, records shows.
In 2022, the most recent data available, State Farm held more than one out of every five homeowner policies in the state, according to the department. That was the largest of any company.
The newly-approved increase comes at a challenging time for the state’s insurance market. A growing number of residents have been left with fewer insurance options and higher prices as major companies have paused or restricted new business.
One of those was State Farm, which in May announced that it would stop accepting new applications for property and business policies as a way to improve its financial health. The company cited higher construction costs, a growing risk from catastrophic events, such as wildfires, and challenges related to how it insures its own business when it made the decision.
In an emailed statement, company spokesman Sevag Sarkissian said increased costs and risk were also behind the recently-approved rate change.
“We are committed to working cooperatively with public policymakers and officials on reforms that promote market stability and the long-term interests of our California customers.”
Insurance Commissioner Ricardo Lara in September announced a series of policy actions he hopes will reach the same outcomes.
They include allowing insurance companies to use computer models to better plan for future losses and to recover costs related to insuring their California policies. In exchange, companies would agree to insure a certain percentage of homes in areas of the state with high wildfire risks.
Still, details of the proposed changes have not been finalized and the department also has to get new regulations approved before they are implemented. At a hearing in front of state lawmakers earlier this month, Lara called California’s insurance rules outdated and no longer reflecting current risks. He said the department hoped to have the new regulations done by next December.
In the meantime, Lara acknowledged that uncertainty would continue in insurance pricing and availability.
“It’s going to be tough, I want to say, for the next couple months, but hopefully you’re going to start to see the market start stabilizing itself.”
Rex Frazier, president of the Personal Insurance Federation of California, which lobbies on behalf of insurance companies, said the state’s current system contributed to the rate increase.
The company made the request to the department on Feb. 28, records show. It was approved Dec. 22.
“We don’t have a broadside against the department but there’s a downside to this process, too, that we have to acknowledge,” Frazier said. “If companies cannot follow where costs go, or it takes them in this case 10 months, then it ties their hands.”
Insurance companies want the department to approve their rate change requests more quickly. Lara, for his part, claimed companies are contributing to delays by submitting incomplete applications. He said the department is hoping new changes will speed up the process.
In an emailed statement, department spokesman Gabriel Sanchez said: “There are no facts to support a correlation between the time it took to approve State Farm’s rate application to a request for a higher rate.”
At the same time, Sanchez said there are many factors that go into how long it takes to approve a cost increase, including whether or not an outside entity intervened in the process. Under state law, people and entities can challenge rate changes.
In this case, Consumer Watchdog, an organization that frequently intervenes in rate cases, did.
Harvey Rosenfield, who founded Consumer Watchdog, said it ultimately agreed to the increase. Even so, Rosenfield said the organization “had hoped to get much more information than we were able to get” from State Farm to justify it.
The company, when applying for the change, proposed it would go into effect in March.