State Farm General, California's largest home insurer, faces accusations of boosting its parent company's profits at the expense of policyholders while simultaneously seeking a substantial 30% rate increase. Consumer Watchdog, a Los Angeles-based advocacy group, has raised concerns about the company's reinsurance practices and their impact on California consumers.
According to Consumer Watchdog, State Farm General purchased billions of dollars worth of excess reinsurance from its parent company, State Farm Mutual Automobile Insurance Co., over the past decade. Reinsurance is typically bought by insurers to protect against catastrophic events. However, the group alleges that State Farm General received minimal returns on these investments, even during severe wildfire seasons in 2017 and 2018.
Carmen Balber, executive director of Consumer Watchdog, stated, "Reinsurance is a main reason State Farm is asking for its massive 30% rate hike — but the company is overpaying for reinsurance and consumers shouldn't foot the bill."
The advocacy group's analysis reveals that State Farm General purchased $2.2 billion in homeowners reinsurance from 2014 to 2023, recovering only about 20% of that amount in claims. Approximately two-thirds of this reinsurance was reportedly obtained from State Farm Mutual.
In response to these allegations, State Farm declined to comment, citing the ongoing rate filing review by the California Department of Insurance. A company spokesperson stated, "The appropriate place to share facts and bring clarity to this complex matter is within the formal rate filing process."
The accusations come at a time when State Farm General is not only seeking significant rate increases but has also announced plans to discontinue 72,000 property policies in California. The company cites rising reconstruction costs, increased wildfire risks, and outdated state regulations as reasons for these actions.
The California Department of Insurance is currently reviewing State Farm's rate increase request. Michael Soller, the department's deputy commissioner for communications, indicated that regulators share some of the concerns raised by Consumer Watchdog and are seeking additional information about State Farm's financial status and reinsurance arrangements.
As the insurance landscape in California continues to evolve, with several major insurers adjusting their policies and rates, the outcome of this investigation could have significant implications for both State Farm and its policyholders in the state.