By Stephen Hobbs, SACRAMENTO BEE
https://www.sacbee.com/news/politics-government/capitol-alert/article301590469.html
Insurance Commissioner Ricardo Lara said Friday he will approve State Farm’s request for an emergency rate increase, but only if the company’s California arm can justify its need for it at a public hearing next month.
“To resolve this matter, I am ordering State Farm to respond to questions in an official hearing, promoting transparency and a path forward,” he said in a statement. State Farm General Insurance Co. leaders asked Lara for an almost 22% average price increase for homeowners policies across the state on Feb. 3, saying it was in need of financial help following the catastrophic Los Angeles area fires earlier this year.
Lara had already pushed off making a decision on the request so he could hold a closed-door meeting Feb. 26 with company officials and representatives from Consumer Watchdog, an advocacy organization that opposed the rate hike. Now, he wants State Farm to appear before an administrative law judge on April 8 to continue to make its case.
Lara also recently requested it stop non-renewing policyholders across the state and seek $500 million from its parent company to strengthen its financial health, according to a transcript of a March 11 meeting provided by the Department of Insurance. “State Farm claims it is committed to its California customers and aims to restore financial stability,” Lara added Friday. “I expect both State Farm and its parent company to meet their responsibilities and not shift the burden entirely onto their customers.”
When Lara delayed the decision last month, State Farm said it was “very disappointed” he did not approve the request. It was a little more supportive of the latest move. “It’s time for certainty in the California insurance market for our customers,” the company said in a statement.
“The provisional nature of today’s decision does not improve that certainty but it’s a step in the right direction.” State Farm not adding customers During the February meeting, Mark Schwamberger, the company’s chief financial officer told Lara: “We are at a crucial point in terms of the financial stability and viability of State Farm General,” according to a transcript provided by the department. The company has over 1 million policies in the state, its CEO Dan Krause told the commissioner.
Lara asked the State Farm officials if they would take on more policies if he approved their request. “I think the short-term answer to that is: No,” Schwamberger said, adding that it wouldn’t be fiscally responsible for the business to start taking on new policies. State Farm has long been a top insurer in California.
In 2023, the most recent state data available, it wrote one-fifth of all homeowner coverage. In May of 2023, the company stopped adding new homeowner business in California due to higher construction costs, rising risks of catastrophic events and challenges finding its own insurance coverage. Last year, it also announced it would not renew roughly 72,000 homeowner, commercial apartment and other policies.
The decision infuriated many long-time customers. State Farm executives, when they asked for the emergency hike, told Lara that a fund the company uses to pay claims had about four times more money in 2016 than it did at the end of last year.
After the February meeting, Consumer Watchdog attorneys had urged Lara to reject those cost increases. “Rather than explore other means of raising capital available to any business, State Farm wants you to allow them to reach into the wallets of their own customers as a source of bailout funds for its own mismanagement,” they wrote in a March 6 letter.
On Friday, Consumer Watchdog Executive Director Carmen Balber, said in a statement: “It’s a victory for consumers that State Farm will have to make its case in a public hearing before a judge, and the judge will decide if a rate hike is justified. The company has so far failed to back up its request, and unless State Farm proves otherwise the outcome of a hearing should be a rejection.”
State Farm asked for a 21.8% increase for homeowner coverage and 15% for renters and condominium policies, according to an order from the department. State Farm also asked for a 38% increase for landlord coverage. Those will go into effect June 1 “if State Farm is able to meet its burden to support these interim rate requests,” the order said.
