By Megan Fan Munce, SAN FRANCISCO CHRONICLE
https://www.sfchronicle.com/california-wildfires/article/insurance-state-farm-lara-20168085.php#
In a rebuke to the state’s largest insurance company, California Insurance Commissioner Ricardo Lara announced Friday he will not grant State Farm General’s request for an emergency rate hike in the wake of the Los Angeles wildfires.
Lara sent the company a letter Friday demanding that it provide concrete proof of its poor financial state before regulators consider letting it implement massive price increases for homeowners, condo owners and home renters. The company had sought to raise rates by 22% for homeowners, 15% for condo owners and 38% for rental dwellings.
“My goal is to make sure policyholders do not have to pay more than is required. In light of the recent Los Angeles wildfires, State Farm’s customers need real answers about why they are being asked to pay more and what responsibility the company’s leadership is taking to get its financial house in order,” Lara wrote.
He asked the company to provide more evidence of its poor financial performance and how it would recover, besides just increasing prices and dropping customers. In past filings, State Farm has said it does not plan to reduce executives’ pay or turn to its national parent company for financial help, instead relying on “technology modernization and continued optimization of its operating model” to cut costs.
Lara’s letter means, for now, State Farm customers won’t need to worry about another hike in their premiums. But it doesn’t eliminate the possibility of a large rate hike down the line. A State Farm spokesperson said in a statement that the company was “very disappointed” in the commissioner’s letter.
“This lack of approval sends a strong message to State Farm General about the support it will receive to collect sufficient premiums in the future to protect Californians against the risk of loss to their homes,” the spokesperson wrote.
Over the summer, State Farm filed for a 30% rate hike for homeowners, 52% for home renters and 36% for condominium owners — a request that’s been pending for more than seven months. After the Los Angeles wildfires, State Farm modified its ask.
It instead petitioned state regulators to approve a slightly smaller price hike, but requested they approve that hike immediately so the company could start raising prices as soon as May.
Doing so would be necessary to prevent “a dire situation” for State Farm policyholders and the California home insurance market, where State Farm is the largest insurer by far, the company wrote to regulators.
As of Friday, State Farm has paid customers more than $1.35 billion in home and auto claims. At the end of last year, State Farm General — the California-only State Farm subsidiary — only had about $1 billion in surplus, the company said in filings. Though State Farm General handles all home insurance policies in California, State Farm still controls auto insurance through its national parent company, State Farm Mutual Automobile Insurance.
In a letter to the Department of Insurance, State Farm wrote that these losses would justify the large price hike it was seeking and that it would agree to issue refunds if regulators later determined that the increase was too high.
Consumer Watchdog, a consumer advocacy group, objected to the request and demanded that State Farm provide proof of its need before regulators allowed the insurer to raise prices for its customers. Last year, State Farm already began implementing an average 20% rate hike for homeowners.
Pam Pressley, senior attorney for Consumer Watchdog, said in a statement that the group would continue pushing for a hearing before an administrative law judge to decide the fate of State Farm’s request — which Lara said in his letter could be necessary.
Though the emergency rate hike request was denied, State Farm’s original request remains open. If the company is able to provide regulators with the proof they require, customers could be in store for a painful rise in premiums.
Lara called for a meeting later this month between the department, State Farm and Consumer Watchdog to address the request.
