By Levi Sumgaysay | CalMatters
In the wake of last month’s Los Angeles fires, California Insurance Commissioner Ricardo Lara rejected State Farm’s “emergency” premium increase of 22% on average for California homeowners, setting up what could be a highly consequential showdown with the state’s biggest insurer.
In a Friday, Feb. 14, letter to State Farm executives, Lara said that he needs more information before he can approve an increase. He asked insurance company to appear before him in person on Feb. 26 at the Insurance Department’s office in Oakland to answer his questions at an “informal conference.”
“The burden is on State Farm to demonstrate that interim relief is warranted under the circumstances,” the commissioner wrote. “My goal is to make sure policyholders do not have to pay more than is required. In light of the recent Los Angeles wildfires, State Farm’s customers need real answers about why they are being asked to pay more and what responsibility the company’s leadership is taking to get its financial house in order.”
In response, State Farm said in a statement that it “must seriously consider its options within the California insurance market going forward.”
“We are very disappointed the Commissioner ignored his department’s recommendation to take the critical and necessary step to approve State Farm General’s request for interim rate increases,” the statement said, adding that the company has “gone to great lengths” to answer the questions the commissioner asked in his letter.
Also see: Why all California homeowners could be on the hook for LA County wildfire costs
The company last week asked for interim rate increases averaging 22% for homeowners, 15% for renters and 38% for condominium owners, saying it had already paid out $1 billion in claims from the Los Angeles County fires so far and expected to “pay out significantly more.” It wanted to be able to raise premiums starting in May.
Before making the interim request, State Farm had been waiting for the Insurance Department to approve its rate increase requests from last year.
Lara acknowledged in the letter that his staff recommended last week that he approve the company’s request, but said “my primary responsibility is to the people of California.”
In his letter, Lara asked for an explanation of what has changed between State Farm’s request last summer and now. He also wanted to know what else the company is doing to improve its financial situation besides raising rates, and whether State Farm’s parent company — State Farm Mutual Automobile Insurance Co. of Bloomington, Ill. — would be able to step in to help. The commissioner also asked how granting the company its request would affect its 2023 decision to continue not writing new policies in California, which was followed by its decision last year not to renew the policies of tens of thousands of customers in the state.
Property owners in California have struggled with insurance availability and affordability in the past few years as companies have either stopped renewing policies or writing new ones, citing wildfire risk and inflation. Many homeowners have had to turn to the FAIR Plan, a coverage pool, funded by insurance companies operating in California, that’s required by law to provide fire insurance to those who can’t otherwise find it.
Last week, Lara approved a $1 billion lifeline sought by the FAIR Plan, which said it risked running out of money to operate as it pays out claims for the Los Angeles-area fires. Its member companies will be responsible for that amount, and are expected to take advantage of their new ability to try to recoup half of that money from their customers by charging them a one-time fee.
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