If you watch the Super Bowl today, you won’t see the ubiquitous State Farm Insurance commercials featuring pro athletes.

State Farm ads have dominated TV commercial breaks in professional sports in recent years, but the company announced it would sit out the game today.

Why? Bad imaging after the Los Angeles fires. But there’s more to this story.

On Feb. 5, we wrote an Editorial on State Farm’s demand for a 22% rate hike on California customers, noting that the increases came after unprecedented claims and damages from the LA fires had put the company, which writes more homeowner policies in California than any other insurer, in financial jeopardy. We noted the increase could be yet another painful burden on Santa Cruz County homeowners, especially those in the Santa Cruz Mountains. The increases, and the departure by many insurers from California, have left many residents, with little choice but to go to the state-sponsored FAIR Plan, which is both expensive and lacking in comprehensive coverage. And with increasing demand, the FAIR Plan itself is in financial straits.

So we read with interest a Feb. 6 Wall Street Journal investigative report on how State Farm got in trouble by making a huge bet insuring high-value homes in wildfire-prone areas of the state that competitors rejected as too vulnerable to fires. The Journal report shows that State Farm lowballed rates and after achieving a dominant position in the state market, began a series of rate hike demands to state regulators.

The deliberate strategy worked for a while, generating substantial commissions for agents and allowing State Farm to garner more than 20% of the California market, far more than any competing insurer. In 2023, the insurer took in $2.7 billion of home-insurance premiums in the state, according to the Journal report. But behind the scenes, according to the Journal, “red flags were emerging, as State Farm faced up to years of internal warnings about its levels of risk.”

State Farm is the nation’s largest home and auto insurance company, with more than a million home policies in California. But over the past nine years, the company says it has spent $1.26 for every dollar collected in premiums in the state. State Farm is a mutual company, owned by its policyholders, which uses a series of subsidiaries to sell insurance and investment products.

State Farm’s sales drive in California surprised rivals, according to the Journal, as it pushed further into risky neighborhoods and repeatedly asked the state for a fraction of the increases needed to bring its rates up to the necessary levels. In 2022, it asked for a 6.9% increase, rather than the 23% rate its own math indicated was needed. Insurers in general kept rate requests low to navigate California’s tough price controls.

All that changed in February 2023, when State Farm executives met with California Insurance Commissioner Ricardo Lara and subsequently put in for a 28% increase in home insurance rates. Weeks later, the Journal reported, “State Farm upped the ante by announcing it would stop selling new home insurance policies in the state, matching moves by other insurers and paralyzing the market.”

After blasting State Farm and its competitors for creating “uncertainty and anxiety” among consumers, Lara later announced a new policy that allowed companies to use their wildfire-risk forecasting models in rate-setting. Lara later approved a 20% rate increase for State Farm, but in June of 2024, State Farm applied to increase rates by another 30%, on top of the 20% increase agreed to in 2023.

Monday, State Farm asked California regulators to approve the 22% emergency rate hike for homeowners and said immediate approval is needed “to help avert a dire situation” for California customers.

Regulators have pushed back on State Farm’s demands for a 30% increase. But State Farm is still the market leader in California and if the company leaves completely, the coverage crisis will get exponentially worse.

Which means regulators will be under considerable pressure to approve the rate increases. The issue is expected to go to a public hearing this year.