State Farm office in Downtown Baltimore, MD. August 20, 2020.Photo: Diego M. Radzinschi/ALM
California Insurance Commissioner Ricardo Lara has provisionally approved State Farm’s request for an emergency interim rate increase if the carrier can justify the hike at a public hearing in April.
In wake of the LA County wildfires, the state’s largest home insurer requested an immediate 22% rate increase for homeowners, along with a 38% increase for rental dwellings and a 15% increase for renters and condo owners.
“Currently, too many Californians live in fear of having their insurance policies non-renewed,” Commissioner Lara said in a release. “This anxiety perpetuates misinformation and discourages consumers from accessing their entitled benefits. This situation is unacceptable.”
“To resolve this matter, I am ordering State Farm to respond to questions in an official hearing, promoting transparency and a path forward,” he added. “It is evident that other California insurers are unable to absorb State Farm’s existing customers, which poses a significant risk of these customers ending up on the FAIR Plan—a scenario we all wish to avoid as my Sustainable Insurance Strategy is implemented.”
In February, Lara rejected State Farm’s emergency request, saying the company has not shown why the increase is needed.
State Farm insures roughly 250,000 homes and 880,000 automobiles in LA County. The company insures over one million homes and more than four million autos across the state.
“It’s time for certainty in the California insurance market for our customers," State Farm said in a statement sent to PropertyCasualty360.com. "The provisional nature of the decision does not improve that certainty but it’s a step in the right direction."
According to State Farm, the company has already paid $1.75 billion on roughly 9,500 claims. Meanwhile, reinsurance will lower its overall losses to about $612 million. The public hearing is scheduled for April 8.
“California is at a crucial stage as it faces insurance availability and affordability issues and the key to addressing both is to ensure that insurers are encouraged to stay and grow their presence in the California property insurance market,” said Spencer Kook, partner at Hinshaw & Culbertson.
“While far from ideal, this Order at least creates a time frame within which State Farm can get clarity on emergency interim rate relief,” he said. “The question is whether the result of the process contemplated in the Order will be sufficiently timely and substantively adequate.”
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