State Farm Issues Ultimatum to California

California’s largest insurer, State Farm, has issued a stark ultimatum to California’s Department of Insurance: approve significant rate hikes for home insurance or face the company’s exit from the market. This move highlights the growing insurance crisis in California as costs continue to soar due to the intensifying risks of climate disasters.

On Thursday, State Farm requested permission to increase home insurance rates by 30% for homeowners, 36% for condo owners, and a staggering 52% for renters. The company warned that if these demands are not met, it will cease providing coverage in the state. This ultimatum comes as a slew of other insurers, including Allstate and Farmers Direct, have already limited coverage or exited the California market entirely, citing the increased frequency and severity of natural disasters.

State Farm’s proposed rate hikes are now under review by the California Department of Insurance. Insurance Commissioner Ricardo Lara has expressed serious concerns about the company’s financial condition and the potential impact on millions of California consumers. Lara emphasized the need for a thorough review of State Farm’s financial situation and indicated that a rate hearing might be necessary to allow public input on the proposed changes.

The review process could take months, with the Department of Insurance averaging 180 days per rate review, sometimes longer. This delay is partly due to the increased number of wildfires in California, which have significantly impacted the insurance landscape. The state had already approved two previous rate increases for State Farm: a 6.9% hike at the start of last year and a 20% increase this past March.

The situation is dire for many Californians, with more than half reporting that they have faced rising property insurance costs or have been dropped by their insurers in the past year. With fewer companies offering coverage, consumers find it increasingly difficult to switch providers, exacerbating the crisis.

Despite these challenges, State Farm remains a financially robust company. As of 2021, it was estimated to have a net worth of approximately $143.2 billion, generating $87.6 billion in annual revenue. In February, the insurer reported a net income of $1.2 billion for the previous year, more than double the $588 million it earned the year before. This financial strength makes the ultimatum even more striking, as it typically signals an insurance carrier in distress, a scenario not currently visible with State Farm.