By Lisette Cruz
On March 14, 2024, the California Department of Insurance (CDI or the Department) published a news release announcing CDI Commissioner Ricardo Lara’s provisional acceptance of State Farm’s request for an emergency interim rate increase. This decision follows a letter sent by State Farm to Commissioner Lara expressing concerns over the company’s financial deterioration driven by increased wildfire-related risks. The letter includes an urgent request for assistance in the form of an emergency interim rate approval to stabilize State Farm’s operations within the California insurance market, following the insurer’s earlier decisions to stop writing new policies and to non-renew existing policies within the state. State Farm called for rate increases in the following amounts: 22% for Non-Tenant Homeowners, 15% for Tenants–Renters, 15% for Tenants–Condominium Unit-owners, and 38% for Rental Dwelling.
In the Department’s follow-up meeting transcript regarding State Farm’s emergency interim rate increase request, Commissioner Lara’s provisional approval aims to resolve concerns over short-term insurance market instability, ensure that California consumers have access to a variety of insurance options, and provide State Farm with additional time to prepare for a rate hearing to determine whether the insurer’s request is warranted.
Proponents for the regulation include Spencer Kook, an insurance regulatory and commercial litigation attorney at Hinshaw & Culbertson LLP, who has stated that “California is at a crucial stage as it faces insurance availability and affordability issues, and the key to addressing both is to ensure that insurers are encouraged to stay and grow their presence in the California property insurance market.” Although Kook finds the emergency interim rate increase far from ideal, he views Commissioner Lara’s provisional approval as an opportunity to create a time frame “within which State Farm can get clarity on emergency interim rate relief.”
Critics, including Harvey Rosenfield, Consumer Watchdog’s founder and author of Proposition 103, argue “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.” Additionally, Will Pletcher of Consumer Watchdog contends that if the Department were to grant an emergency rate increase, it would set a dangerous precedent to allow insurers to manufacture financial crises to evade Proposition 103’s consumer protection laws. Ultimately, Pletcher asserts that State Farm’s request violates Proposition 103 and attempts to bypass consumer protections by requesting an “emergency pre-approval” and deferring the determination of whether the rate increase is justified until a later date.
Passed by California voters in 1988, Proposition 103, otherwise known as the Insurance Rate Reduction and Reform Act, established a regulatory system of prior approval. This system requires insurance companies to obtain permission from the Insurance Commissioner to implement property and casualty insurance rate changes. Under Proposition 103, insurance companies are precluded from charging consumers excessive, unjustified, and arbitrary rates. Every insurer that desires to change any rate is required to justify all future increases by submitting a rate application that discloses the insurer’s financial condition.
A public rate hearing was scheduled for April 8, 2025, at 10:00 a.m. at the Department’s office in Oakland before an Administrative Law Judge for State Farm to justify its rate increase request with actuarial data.