California insurance commissioner approves State Farm emergency rate hikes

OAKLAND, Calif. - California's insurance commissioner approved a judge's ruling Tuesday that will allow State Farm to raise policyholders' insurance rates as much as 17% for homeowners, 15% for renters and condo owners, and 38% for rental homes.  The approval by state Commissioner Ricardo Lara came after an administrative judge ruled in favor of the emergency rate hikes Tuesday.

The news stunned many State Farm customers in the Bay Area, who say it would be a financial strain if rates increase that much. 

"I'm retired. I just retired and that is definitely going to affect me being on a fixed income," said Jody Kasamoto, a customer who lives in Pinole.

"I have State Farm with my home and my rental property and that's going to cause definitely a financial burden for me and my family, when it comes to raising up the percentage that much," Jules Milstead, a Hayward State Farm customer said. 

The initial request from the insurance company came after the destructive Los Angeles wildfires in January that burned 16,000 buildings, primarily homes, resulting in as much as $7billion in claims. 

State Farm is California's largest insurer with roughly one million policies across the state. 

In April, the company argued the emergency rate hikes would help State Farm rebuild its capital after the wildfires. 

State Farm initially requested a 22% increase for homeowners, but the judge approved 17%.

Ria Cotton-Landry is President of the California Association of Real Estate Brokers, and says a rate increase could also impact the housing market as people recalculate their finances to include higher insurance rates. 

"That is going to have a ripple effect on homeowners as well as prospective buyers," Cotton-Landry said. 

During a three-day hearing that began April 8, the company was required to justify with data why the rate hikes were necessary.

According to the judge, the evidence the insurance company presented during the hearing "established a prima facie showing that State Farm is experiencing extraordinary financial distress, coupled with surplus depletion that threatens ongoing business operations."

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The judge's decision was then approved by Lara on Tuesday. 

"Let me be clear: We are in a statewide insurance crisis, affecting millions of Californians," the commissioner said in a statement. "Taking this on requires tough decisions. This is not a game. This is not a media-driven moment for some to exploit — this impacts people I am committed to protecting."

"The fact that State Farm was allowed to get this rate increase without proving it needed it is just the beginning. Now all the other insurance companies are going to want to get a free pass," Harvey Rosenfield. founder of Consumer Watch said. 

Though Lara approved the judge's ruling Tuesday, the order is still dependent on a complete hearing. 

The rate increase will take effect June 1.

"The emergency rate increase takes effect June 1, with a full rate hearing scheduled to start at a date determined by the judge."

As part of the approval, State Farm will also receive an immediate $400 million from its parent company to address financial concerns.

The other side:

Consumer Watchdog, a nonprofit consumer rights advocacy group, called Lara's decision disappointing, FOX LA reported.

"Today’s decision forcing consumers to pay now but allowing State Farm to wait months before having to show its math is a great disappointment for consumers," said Carmen Balber, executive director of Consumer Watchdog. "Voter-approved Proposition 103 says a rate hike shouldn’t come before the rate justification, but that’s what happened here. 

The nonprofit's executive director said many wildfire victims are struggling to get their claims paid, while also facing impending rate hikes.

"State Farm policyholders, many of whom are struggling to get their claims paid by the company after the Los Angeles fires, are now facing double-digit rate hikes," she said. "Nevertheless, we will fully defend consumers’ right to fair rates in the upcoming hearings where State Farm will finally have to justify what they want to charge."

And with many companies leaving the state, consumers say they don't have many other options. 

"It's going to be hard for me to say hey, I'm going to go somewhere else because they hike up the prices, because there aren't a lot of people who will insure you because of what's going on in California right now," Milstead said.