State Farm Accused of Trying to 'Cash in on a Terrible Tragedy' With $740 Million 'Bailout'

The insurance giant State Farm on Monday asked California state insurance regulators to approve an emergency interim rate hike of 22%, drawing pushback from the nonprofit Consumer Watchdog, which accused the company of not providing the financial data necessary to justify the increase.

"State Farm wants to fill its bank accounts on the backs of California homeowners, some of whose homes are in ashes," said Carmen Balber, Consumer Watchdog's executive director. "Insurance Commissioner [Ricardo] Lara must require State Farm to prove it needs this staggering increase."

Devastating wildfires ravaged the Los Angeles area starting in early January, compounding an already escalating insurance crisis in the state and causing between $35 to $45 billion in insured property losses, according to one estimate. The fires, which are now either out or fully contained, generated over 8,700 claims for State Farm General, the California homeowners insurance affiliate of the firm State Farm Mutual Automobile Insurance Company. The compnay said it has paid over a billion to customers due to the blazes.

State Farm General is the largest insurance group in the state. The firm stopped writing any new policies in May 2023, and last spring the company announced it would not renew plans for tens of thousands of homeowners—though it has said it will renew policies for those impacted by the recent fires in Los Angeles County.

In a letter to the California Department of Insurance, leaders at State Farms General requested that the department take "emergency action to help protect California's fragile insurance market," by allowing interim rate increases of 22% for homeowners, 15% for renters, 15% for condo owners, and 38% for rental dwellings.

"State Farm General's rate filings raise serious questions about its financial condition," department spokesman Gabriel Sanchez said, according to the outlet Insurance Business.

Proposition 103, a measure passed in 1988 which sought to protect consumers from arbitrary insurance rate hikes, requires insurance companies to back up their rate applications with "comprehensive data," according to the California's insurance commissioner.

Consumer Watchdog said that State Farm General is asking for an increase on an interim basis, meaning "without having to prove that it needs that increase, or the impact higher premiums will have on the ability of consumers to afford coverage."

The letter from State Farm General to the department includes an "illustration of State Farm General financial deterioration" as an attachment.

According to Consumer Watchdog, the requested 22% hike on home insurance rates amounts to $740 million a year for the company. The group has called the request a "bailout."

The request comes after State Farm General last summer asked for a 30% rate increase for its homeowners, a 52% rate increase for renters, and a 36% rate increase for condominium owners. In December 2023 it was approved for a 20% increase for homeowners and condominium owners.

The insurance company is "trying to cash in on a terrible tragedy by detouring the rules that protect state consumers from insurance price gouging—at a time when those safeguards are more important than ever," said Balber.