By Mike Pangilinan, INSURANCE BUSINESS
A consumer advocacy group in California has accused Allstateand State Farm of engaging in extortion tactics after both companies recently halted the issuance of new home insurance policies in the state.
Both Allstate and State Farm have attributed their decision to climate change and inflation, arguing that the current conditions make it financially unviable for them to provide coverage in California.
But Harvey Rosenfield, founder of Los Angeles-based Consumer Watchdog, pushed back on these concerns and said that the insurance giants are still raking in record-high profits.
“Their profits in California on homeowners insurance are four times the national average,” Rosenfield told local news outlet ABC7. “Over the last 20 to 25 years, they’ve taken in tens of billions of dollars more than they’ve paid out in claims during that time.”
Rosenfield previously referred to State Farm’s move as unlawful under Proposition 103, which requires insurance companies to “open their books and justify rate changes in a process open to public scrutiny.”
“State Farm says its decision to stop all new sales in California is intended to improve the company’s financial strength,” he said in a recent news release. “But State Farm did not wait for the commissioner to review and determine its impact on State Farm’s homeowners rates. Instead, State Farm announced that its ban on new sales would go into effect the next day.”
In his interview with ABC7, Rosenfield further argued that the insurance industry is seeking unjustified rate increases, and that Allstate and State Farm are attempting to pressure California Insurance Commissioner Ricardo Lara to grant their requests.
“This is extortion but it’s not real,” he said.
As concerns heighten over State Farm and Allstate’s decision, the California Department of Insurance released a statement affirming its commitment to consumer protection.
“The Department of Insurance is focused on protecting consumers,” the statement read. “Insurance regulators across the nation are dealing with the impacts of climate change-intensified natural disasters on consumers and companies.”
The department said insurance companies often pause and resume writing policies as conditions change, adding that there are currently over 115 companies offering homeowners insurance in California.
“The Department of Insurance is driven to ensure consumers have the most options to meet their insurance needs,” the statement read further. “No non-renewals are taking place with either State Farm or Allstate’s announcements. The factors driving State Farm’s decision are beyond our control, including climate change, reinsurance costs affecting the entire insurance industry, and global inflation.”
Despite this response, Rosenfield said Commissioner Lara possesses the authority under Proposition 103 to declare an emergency and compel Allstate and State Farm to resume selling homeowner insurance policies.
“If he does not enforce the law, this will become a tsunami and it will have a devastating impact on California consumers and upon the economy,” Rosenfield told ABC7.
He also urged the commissioner to take immediate action and insist that if Allstate and State Farm want to continue selling any other form of insurance in the state, they must also provide homeowner policies.
“It’s clear to us that the insurance industry is in the middle of a boycott of the state of California,” he added. “They want uncontrolled rate increases.”
Proposition 103 was authored by Rosenfield. It was passed by California voters in 1988 and made the California Insurance Commissioner an elected position.