State Farm General Insurance Co. is facing an investigation by the California regulator over its handling of claims from the Los Angeles wildfires in January.
Insurance Commissioner Ricardo Lara said in a press release that he is initiating a "market conduct examination" into how the State Farm Mutual Automobile Insurance Co. subsidiary handled thousands of claims from policyholders affected by the Palisades and Eaton fires. These fires burned over 37,000 acres, destroyed or damaged nearly 19,000 structures, and resulted in 29 fatalities.
A market conduct examination involves a detailed "fact-based review" that usually takes several months to complete, according to the release. Insurers are now making payment decisions, which the regulator said enables the department "to evaluate adjuster practices and thoroughly assess State Farm's methods across a wide range of claims handling."
The examination will assess whether State Farm has complied with California's consumer protection and claims handling laws and will help determine if additional reforms are necessary. While there have been "general allegations" from groups representing wildfire survivors about State Farm's claims processing, a formal complaint is required for the department to take action, Lara said.
State Farm is one of several major insurers in the Golden State that have been hit with class-action and antitrust lawsuits filed by a group of property owners affected by the January wildfires. The lawsuits accuse insurers of scheming to restrict coverage in high-risk fire zones, forcing policyholders to seek coverage from the California Fair Plan Association, the state's insurer of last resort.
State Farm is cooperating with the regulator and will comply with the market conduct exam process, the company said in a statement.
"A fair review will find that thousands of State Farm customers are being helped by our teams on the ground in Los Angeles County and are very satisfied," the statement read.
State Farm booked a record $7.6 billion in catastrophe losses from the fires, which broke out on Jan. 7 and were not contained until Jan. 30. Insured loss estimates for the fires ranged between $35 billion and $45 billion.
The heavy losses prompted State Farm General to request emergency rate increases from the regulator, stating that the losses had "significantly deteriorated" the company's surplus. The insurer asked for a 21.8% rate hike for non-tenant homeowners that was later reduced to 17%, a 15% increase for renters, 15% for tenants/condominium unit owners and a 38% increase for rental dwellings/landlords.
Lara provisionally approved the increases but required State Farm General to justify them at a public hearing held from April 8 to April 10. The presiding judge, Karl Frederic Seligman, recommended final approval for the proposed increases. In his decision on May 12, Seligman stated that the increases were "fundamentally fair, adequate, and reasonable." He also noted that the insurer's financial condition had deteriorated, requiring it to "take action to improve its financial footing."
