By Kenneth Araullo, INSURANCE BUSINESS
Consumer Watchdog has criticized Insurance Commissioner Ricardo Lara’s approval for State Farm to reduce the discounts offered to homeowners for wildfire mitigation, in addition to exempting the company from detailing wildfire risk factors to consumers in writing.
The decision comes despite a petition from Consumer Watchdog challenging these aspects of the company’s filing under the “Safer from Wildfires” regulations.
Starting September 1, State Farm will offer a 6.3% discount to policyholders who meet all the “Safer from Wildfires” individual home hardening and brush clearance standards and live in a Firewise USA or Fire Risk Reduction Community. This will result in an average saving of $113 per year for policyholders.
This discount, however, is lower than the current 7% discount offered for less stringent wildfire protection measures. Seven of the 10 individual mitigation standards, such as removing combustible structures within 30 feet of the property or installing multi-pane windows, will only qualify homeowners for a 0.1% reduction in their premium.
Consumer Watchdog had sought larger discounts or a justification from State Farm for reducing them.
Additionally, State Farm will offer an extra 2-3.8% discount to homeowners who achieve a certification from the Insurance Institute for Business and Home Safety (IBHS). However, homeowners must pay a $125 inspection fee to determine eligibility for these discounts, which could offset the first year’s savings.
For a homeowner with State Farm’s average premium, achieving the highest IBHS certification would reduce the total mitigation discount from $113 to $55.
“The Commissioner’s failure to ensure that consumers are given the information necessary to understand their wildfire risk and sufficient incentives to mitigate their properties is disappointing. Discounts this small don’t incentivize mitigation and won’t make our state safer from wildfires,” Consumer Watchdog staff attorney Ryan Mellino said.
No detailed explanation required for State Farm homeowners
Consumer Watchdog’s petition also sought to enforce regulations requiring insurance companies to explain in writing to consumers their wildfire risk classification and the reasons behind it. Other insurers provide forms detailing factors such as home characteristics, local fire station access, local vegetation, and past fire activity that impact premiums or non-renewals.
As part of the decision, State Farm will not provide a detailed explanation to homeowners for their premium adjustments due to wildfire risk, prompting statewide consumer complaints about insufficient notifications and explanations.
One week after approving Consumer Watchdog’s petition, Commissioner Lara approved State Farm’s filing and dismissed the petition without requiring better disclosures or more significant discounts.
By doing so, Consumer Watchdog said that the Commissioner is not enforcing the “Safer from Wildfires” regulation requirement for public disclosure of wildfire risk models, making it difficult to assess insurers’ wildfire risk classifications and premium charges or for policyholders to contest their classifications.
Proposition 103, approved by voters, authorizes public participation in rate oversight, enabling Consumer Watchdog to scrutinize and challenge filings. Consumer Watchdog’s challenges to home insurance rate applications have saved homeowners $2.2 billion since 2002, it claimed.
