Dissatisfied with the pace of State Farm’s policy rate cuts, the California Department of Insurance has sent legal notice to the company, saying it faces possible fines that could amount to $2.5 billion.

An LA Times report said that State Farm faces a $10,000 penalty for each act of overcharging against its policyholders. Insurance department lawyer Michael Levy estimates that the company renews 4,000 policies every day, and between the December 8 deadline it set for compliance, and the estimated February 13 proposed completion date by State Farm, the fines could reach $2.5 billion.

State Farm’s Sevag Sarkissian said in a company release that the firm is in the process of complying with the rate cut, but operations concerns surrounding renewal notices will make it fully possible only by February, the publication reported.

“State Farm believes it is in full compliance with the California Department of Insurance rate making process,” Sarkissian was quoted as saying in an email statement.

The firm’s tussle with the California regulator started in 2014 when it asked for permission to raise its rates by an average 6.9%. A couple of advocacy groups, Consumer Watchdog and the Consumer Federation of California, challenged the request.

An administrative judge authorized the insurance department to reject the increase, impose another 7% rate cut and apply the cuts retroactively to July 2015.


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