State Farm General has agreed to lower its proposed interim rate increase for California homeowners insurance policies, scaling back its original request from 21.8% to 17%. The agreement comes as part of an ongoing regulatory review conducted by the California Department of Insurance (CDI), according to a report from AM Best.
As part of the proposal, State Farm’s parent company has committed to contributing $500 million in additional capital to support the financial stability of its California subsidiary.
Regulatory Review and CDI Recommendations
During a recent CDI hearing, department attorney Nikki McKennedy urged Administrative Law Judge Karl-Fredric Seligman to approve the revised 17% rate hike, citing serious financial pressures facing State Farm General — California’s largest provider of homeowners insurance.
McKennedy warned that without regulatory approval of the increase and the associated capital contribution, California homeowners could face widespread disruption in coverage availability. Economist David Appel, consulting on behalf of State Farm General, echoed those concerns. He explained that failure to approve the interim rate adjustment could jeopardize the company’s ability to continue operating in California’s insurance market. Appel recommended allowing the increase on an interim basis, with a full rate hearing to follow to determine whether the increase should be made permanent.
Consumer Watchdog Raises Objections
The proposal has faced pushback from consumer advocacy group Consumer Watchdog. The organization’s legal director, Will Pletcher, argued that California’s insurance regulations do not allow for rate increases based solely on a company’s financial condition or risk-based capital metrics.
“When the largest insurer in the state fails to follow the rules, it should not be rewarded with rate increases,” Pletcher said, emphasizing concerns over regulatory compliance.
Background on State Farm’s Prior Rate Requests
The revised 17% proposal comes after Insurance Commissioner Ricardo Lara last month approved an even larger interim rate increase — from 21.8% to 38% — subject to several conditions.
Those conditions included the $500 million capital infusion from State Farm’s parent company, as well as a pause on non-renewals of non-tenant homeowners policies in California.
State Farm executives, including CEO Dan Krause and CFO Mark Schwamberger, have maintained in meetings with CDI officials and Consumer Watchdog that the company’s continued operations in California depend on stabilizing its financial position through both additional capital and interim rate adjustments.
Next Steps in the Approval Process
Administrative Law Judge Seligman is expected to issue a recommendation to Commissioner Lara within 10 days of the hearing. Commissioner Lara will then decide whether to approve, modify, or reject the proposed 17% interim rate increase.
If approved, the new rates would take effect on June 1, 2025.
