State regulators launch inquiry into State Farm’s handling of fire claims
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State Insurance Commissioner Ricardo Lara announced Thursday that his department is launching a formal inquiry into how State Farm General, California’s largest home insurer, is handling thousands of claims filed by victims of the January wildfires after complaints from policyholders.
The department said it would start a “market conduct examination,” a comprehensive investigatory tool that regulators have to look into significant problems in the insurance market.
The exams typically take months, the department said, and would follow an investigation into State Farm General that has already begun. Past exams have recovered hundreds of millions of dollars in claims for survivors, it said.
“Californians deserve fair and comprehensive treatment from their insurance companies,” Lara said in a statement. “No one should be left in uncertainty, forced to fight for what they are owed, or face endless delays that often lead consumers to give up.
“This examination will assess whether State Farm has complied with California’s consumer protection and claims handling laws and will help determine if further reforms are needed as natural disasters increasingly disrupt insurance markets across the country,” he said.
State Farm General said it is cooperating with the department and its market-conduct exam process.
“A fair review will find that thousands of State Farm customers are being helped by our teams on the ground in Los Angeles County and are very satisfied,” spokesperson Sevag Sarkissian said. “The department routinely examines all insurance companies. These exams help ensure processes and procedures are in full compliance with state regulations.”
The decision follows widespread complaints that State Farm General — the California home insurer that is part of the larger State Farm Group based in Bloomington, Ill. — is fumbling its handling of the Palisades and Eaton fires, which along with other Jan. 7 blazes amount to the largest fire disaster in the state’s history. The fires killed at least 29 people, destroyed more than 16,000 structures and burned some 37,000 acres.
State Farm, the largest home insurer in California, continues to seek approval of a 22% emergency rate hike even as it faces complaints over its handling of insurance claims.
Assemblymember John Harabedian (D-Pasadena), whose district encompasses the Eaton fire zone, said he was “grateful” Lara decided to undertake the market conduct exam so “families get the answers they deserve.”
“In the wake of the Eaton fire, our community deserves clear communication and fair treatment. If State Farm is wrongfully denying my neighbors coverage, we need to know why — plain and simple,” he said in a statement included in the department’s news release.
State Farm, the largest home insurer in California, continues to seek approval of a 22% emergency rate hike even as it faces complaints over its handling of insurance claims.
State Farm General said that as of June 10 it has received more than 12,800 claims related to the Jan. 7 fires and has paid more than $3.96 billion to its California customers. The insurer has estimated the fires will cost it $7.6 billion but said reinsurance payments largely from its parent will lower its losses to about $612 million.
In announcing the updated claims figures, the company said it is “focused on our customers and helping them recover from the largest fire event we have ever experienced in the state.” However, early on, policyholders told The Times that the company was being “stingy,” particularly in how it handled smoke-damage claims.
Since then, the complaints have ballooned — with some homeowners even holding a protest in April outside State Farm General’s claims tent on Colorado Boulevard in Pasadena. They alleged that the insurer has delayed and denied claims, leaving wildfire victims in perilous financial positions and unable to return to contaminated homes.
The anger over the alleged mishandling of claims has been heightened by the insurer’s request for a 17% emergency rate hike due to its losses, which Lara granted last month at the recommendation of an administrative law judge.
The judge said it would stabilize the insurer’s finances pending a decision on a 30% rate hike State Farm requested last year, which will be considered at an October hearing.
Insurance Commissioner Ricardo Lara adopted an administrative law judge’s recommendation Tuesday and granted State Farm General, the state’s largest home insurer, a 17% emergency hike in its homeowners insurance rates.
Lara said it was an appropriate time to pursue the market-conduct exam because State Farm and other insurers are currently making claims payment decisions, “enabling the department to evaluate adjuster practices and thoroughly assess State Farm’s methods across a wide range of claims handling.”
The department in its release said it has received “troubling patterns” of complaints about the insurer, including frequently reassigning multiple adjusters to a single claim with “little continuity in communication,” inconsistent handling of similar claims and inadequate record keeping and information sharing among claims teams.
“These issues create unnecessary stress, prolong recovery, and erode trust,” Lara said.
Los Angeles advocacy group Consumer Watchdog said that the market conduct exam was insufficient. It called on Lara to follow the lead of former Insurance Commissioner John Garamendi, who ordered insurers to fairly resolve all claims stemming from the October 1991 Oakland Hills fires before the end of July 1992.
“Market conduct exams can take years, but fire survivors need action now,” said Carmen Balber, executive director of the group. “Lara must expedite an investigation into whether State Farm is breaking the law before another massive rate hike is approved.”
Joy Chen, founder of the Eaton Fire Survivors Network, also urged Lara to publicly report on whether the company is complying with the law before considering the request for a further rate hike in October.
“Families who paid premiums to State Farm for decades are being devastated, first by the fires and now by State Farm’s delays, denials, and underpayments,” she said.
Rex Frazier, president of the Personal Insurance Federation of California, which represents major property and casualty insurers, said it would “unprecedented” to link allegations over State Farm’s claims-handling practices with the company’s request for a rate hike — “and certainly not part of any rate review regulation.”
This is not the first time that State Farm General has been subject to a market conduct exam. In 2022, the department completed an exam into whether the company’s underwriting practices left policyholders underinsured after wildfires in 2015 and 2017, which destroyed more than 14,000 homes and other structures.
A group of California homeowners filed suit Wednesday against AAA and USAA, alleging that the insurers left them systematically underinsured and unable to rebuild after the Jan. 7 firestorms in Los Angeles County destroyed their homes.
The department alleged that a “significant number” of dwellings in a sample it investigated were left underinsured, which regulators partially blamed on the company’s failure to periodically review the properties. State Farm General denied that and other findings, saying it was the responsibility of policyholders to ensure that they had adequate coverage.
State Farm General is not the only insurer that has been criticized over its handling of Jan. 7 fire claims. AAA and USAA were sued last week by January fire victims who claim their policies left them without adequate coverage to rebuild their homes. The insurers deny the allegations.
The California FAIR Plan Assn., the state’s home insurers of last resort, also has been sued more than half a dozen times over its handling of smoke-damage claims.
State Farm General and other licensed home insurers have been named as defendants in those lawsuits since the plan, though created by legislative statute, is run by the insurers, who share in any profits and backstop losses.
Ten victims of the Palisades and Eaton fires sued the Fair Plan, accusing California’s insurer of last resort of mishandling smoke damage claims.
State Farm General also was named in a recent lawsuit accusing it and other home insurers of colluding to force homeowners onto the FAIR Plan to limit their claims exposure, since the plan’s policies offer less coverage but typically cost more than policies from commercial insurers.
The department of insurance said that policyholders who who are displeased with State Farm’s processing of claims can file a formal complaint online at insurance.ca.gov or by calling (800) 927-HELP. It said it has secured more than $40 million for survivors of the Eaton and Palisades fires who have filed complaints.
As of May 12, insurers have paid out nearly $17 billion to residential and commercial insurance policyholders who filed Eaton and Palisades fire claims, the department said.
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