State Farm General Insurance Co. needs to "seriously consider" its options within California's insurance market after the state's insurance commissioner refused to approve its request for emergency interim rate increases.
The insurer expressed its disappointment over California Insurance Commissioner Ricardo Lara's response to its rate request. Lara asked State Farm General to attend an in-person meeting, scheduled for Feb. 26, to "answer critical questions" about the interim rate increase request and its financial condition.
"This lack of approval sends a strong message to State Farm General about the support it will receive to collect sufficient premiums in the future to protect Californians against the risk of loss to their homes, property and other claims," the insurer said in a statement. State Farm General said that it has "gone to great lengths" to provide clear responses to questions from the commissioner.
State Farm General urged California's insurance regulator to immediately approve its interim rate hike request earlier in February, which the company said would help it rebuild capital and avoid a "dire" situation for its customers and the insurance market. The insurer is seeking rate hikes of 21.8% for non-tenant homeowners, 15% for rental/condominium tenants and 38% for rental dwellings, effective May 1.
The devastating California wildfires in January are expected to be the costliest disasters in State Farm General's history. The insurer said the costs related to the wildfires will further deplete its capital, which could also result in rating downgrades.
The California Department of Insurance's Rate Enforcement Bureau submitted its recommendation to Lara on Feb. 7, asking the commissioner to review and approve State Farm General's interim rate hike request as "expeditiously as possible" given the insurer's urgent situation. The approval is contingent on potential refunds that could be granted following a full rate hearing on the application, which will occur at an unspecified later date.
Lara also ordered Consumer Watchdog to attend the Feb. 26 meeting as intervenor. The non-profit organization previously urged the commissioner to conduct a full rate hearing for State Farm General's pending interim rate request in lieu of approving an interim rate.
In a separate statement, Consumer Watchdog said that State Farm General "failed to demonstrate" why an emergency rate increase is necessary and agreed with the commissioner's statement that it needs to provide more information regarding its request.
However, the non-profit organization said State Farm General should provide that information through a public hearing process instead of a private meeting with the commissioner. This would ensure that there is a public record and public scrutiny for the final determination, according to Consumer Watchdog.
