State Farms argues for California rate hike of up to 38%

OAKLAND, Calif. - The California Department of Insurance held a hearing Tuesday to determine whether to approve State Farm's requested rate hike, which could increase premiums by as much as 38%.

$921 million rate hike

What we know:

At the public hearing held before an administrative law judge, State Farm was required to justify with data why the drastic $921 million rate hike is necessary.

State Farm's request

Dig deeper:

State Farm is seeking approval from insurance regulators for a 22% increase for homeowners, a 15% increase for renters and condos, and a 38% increase for rental dwellings.

State Farm, the state’s largest insurer with roughly 1 million home insurance policies in California, said the emergency rate would help the company rebuild its capital following the Los Angeles wildfires that destroyed more than 16,000 buildings, mostly homes. The company is trying to prevent a "dire" financial situation that executives say could force them to drop more California policies.

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The video appears to have been recorded sometime after the Southern California wildfires, and references the Palisades Fire in particular.

Insurance Commissioner Ricardo Lara said other California insurers won’t be able to absorb State Farm’s customers if the insurance giant stops doing business in the state, but he wants more data on how the company manages its finances and calculates risks.

The judge will issue a proposed decision, and Lara will have the final say.

"State Farm claims it is committed to its California customers and aims to restore financial stability. I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers," Lara previously said in a statement. "The facts will be revealed in an open, transparent hearing."

The other side:

Consumer Watchdog, an advocacy group opposing State Farm’s request for higher premiums, said the insurance company has failed to provide the minimum data required by law to prove the need for the increase.

"They wanted to rely on variances, they did not supply sufficient information as required by the variance, which requires among other things a plan to restore solvency and a plan to return excessive charges to policyholders," the group said at the public hearing.

The hearing is expected to last several days.

In February, the company paid out roughly $1.75 billion to 9,500 claims from the LA  fires and estimated the total loss to reach more than $7 billion. Its surplus also dropped from $1.04 billion at the end of 2024 to $400 million after the fires, according to State Farm. The company is using its surplus and reinsurance to settle the claims.

Without the ability to quickly rebuild its capital, banks and lenders could stop allowing State Farm insurance as collateral for mortgages and require State Farm policyholders to find coverage from different insurers, the company has argued. If homeowners can’t find a replacement, they’ll be forced on the FAIR Plan, which is designed as a temporary option to provide minimum coverage for those without private insurance.