State Farm General has agreed to reduce its proposed interim rate increase for homeowners insurance in California from 21.8% to 17%, according to a report from AM Best, citing testimony during a California Department of Insurance (CDI) hearing.
As part of the agreement, parent company State Farm plans to contribute $500 million in capital to support the subsidiary.
CDI attorney Nikki McKennedy asked Administrative Law Judge Karl-Fredric Seligman to approve the revised rates and related conditions. She cited ongoing financial challenges faced by the state’s largest homeowners insurer, warning that failure to act could disrupt access to coverage for policyholders.
David Appel, an economist serving as a consultant for State Farm General, said denying the rate request could affect the company’s ability to continue operating in the California market. He recommended allowing the increase on an interim basis, with a full rate hearing to follow to evaluate whether the emergency adjustment was warranted.
Meanwhile, consumer advocacy group Consumer Watchdog raised concerns about the justification for the rate increase, pointing to California’s regulatory standards. Legal Director Will Pletcher said the law does not support approving rates based solely on 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.
Last month, Insurance Commissioner Ricardo Lara approved an earlier request by State Farm General to raise interim rates from 21.8% to 38%, subject to conditions, including the capital contribution from its parent company. The insurer also agreed to pause non-renewals of non-tenant homeowners policies.
State Farm General executives had previously outlined their concerns during a meeting with CDI officials and Consumer Watchdog. Company leaders, including CEO Dan Krause and CFO Mark Schwamberger, said maintaining operations in California depended on receiving additional capital to stabilize the company’s financial position.
Seligman is expected to provide a recommendation to Commissioner Lara within 10 days. The commissioner will then determine whether to approve, modify, or reject the proposed interim rate increase, which would take effect on June 1, if approved.
