By Camille Von Kaenel, POLITICO
WOULDN’T WANNA BE YA: Insurance Commissioner Ricardo Lara is about to have to bite the bullet.
After first hitting pause (opens in new tab) on an emergency 22 percent rate hike request by State Farm, the state’s largest insurer, following the Los Angeles fires, he’s now weighing whether to grant it.
Approving it would raise bills for millions of Californians, given that State Farm has 16 percent of the state’s homeowners’ insurance market. Not granting it risks plunging State Farm further into financial trouble, which could reduce insurance availability even more.
It’s the clearest example yet of how worsening wildfire catastrophes have thrust the insurance commissioner job, an elected position historically seen as a stable bolt-hole for ambitious politicians waiting for another plum statewide role to open up, into the front lines of climate politics (opens in new tab) — with the pocketbooks of nearly every Californian at stake (opens in new tab).
And Lara, who’s already faced accusations (opens in new tab) of being too friendly with the industry and who hasn’t yet shared his plans for after his second term ends in 2026, knows it.
“I’m going to be criticized for both acting, and I’m going to be criticized by not acting,” Lara said to State Farm executives in a meeting last week, according to a transcript (opens in new tab) shared by the Insurance Department.
Here’s why he might want to grant the request: State Farm executives have said that the company is on such precarious financial footing that it could face a credit downgrade following the Los Angeles fires, which it expects to be the costliest disaster in its history at $7.6 billion in claims. A downgrade would mean that ratings agencies don’t believe State Farm can be relied on to pay out future claims — and could trigger banks to stop allowing State Farm insurance as collateral for mortgages, an unprecedented hit to the Californians who have State Farm policies.
And here’s why he might not want to grant the request: The emergency rate hike won’t fix any of the underlying issues causing the insurance market to spiral. Advocacy group Consumer Watchdog has argued State Farm could do more (opens in new tab)to pull from the reserves of its parent company and reinsurer to prop up its finances — and has said it could go to court or demand a hearing to prove its point if Lara grants the interim request.
And State Farm told Lara last week that it would need an even higher rate increase than 22 percent before it would consider writing new policies in California, which it stopped doing two years ago.
“If I approve an emergency rate, will you rent more business in California?” Lara asked at the meeting.
“The short-term answer to that is ‘no,’” CFO Mark Schwamberger said.
Of note: State Farm is also concurrently negotiating a 30 percent rate hike request with the Insurance Department under new rules passed by Lara last year that allow it to raise rates using forward-looking models that take climate change into account.
Lara’s staff has recommended granting the 22 percent interim rate hike while continuing negotiations over the bigger rate increase, which they said during the meeting last week they weren’t convinced was warranted.
Then, of course, there’s the other insurers. While no other company appears to be in as deep financial trouble as State Farm, they’re all likely to request higher rates under Lara’s new rules. That sets up the next insurance commissioner for even more political pain.
Campaigning hasn’t started yet, but observers are already zeroing in on Senate President Pro Tem Mike McGuire, who has an open campaign account to run for insurance commissioner in 2026, as a front-runner based on name recognition. Sen. Tom Umberg, former Assemblymember Tom Daly and former Sen. Richard Roth have also filed initial paperwork, according to state records.
Lara said he’ll decide on the emergency rate hike by the end of next week. The stakes are clear:
“I recognize that my decision will impact millions of Californians, including current State Farm customers and those seeking insurance around the state,” Lara said during the meeting.
