Los Angeles, CA – Consumer Watchdog said that Insurance Commissioner Lara is right in asking for more information from State Farm before approving its request for an emergency rate hike, but that he needs to get the answers through the public hearing process prescribed by insurance reform Prop 103, not a private meeting with the company. The group said that State Farm needed to update its rate application with all the relevant information, which it so far refused to give to the Department of Insurance or Consumer Watchdog. The group, which is intervening in the case, said that the final determination should be made in a formal hearing so that there is a public record and public scrutiny.
“The Commissioner is right to call for more scrutiny of State Farm, which has so far stonewalled information requests,” said Pam Pressley, Consumer Watchdog’s senior attorney on the case. “However, the outstanding issues need to be raised and answered in a formal hearing, which Consumer Watchdog has called for, where there is formal discovery and due process rights. Lara’s refusal to approve this interim rate hike confirms Consumer Watchdog’s objections that State Farm needs to provide more data, but it needs to do it in a public hearing, as required by insurance reform Prop 103. We do not agree that the insurance commissioner has the power to approve an interim rate hike without a public hearing.”
State Farm is seeking an immediate 22% rate increase for homeowners, along with a 15% increase for renters and condo owners and a 38% increase for rental dwellings—not because it cannot pay wildfire claims, but because it wants to protect its Wall Street credit rating. However, as Consumer Watchdog’s February 5 letter states, S&P Global rates State Farm and its parent company, State Farm Mutual which has $194 billion in surplus and reserves, together. They have an AA rating, the second-highest possible rating.
Read Consumer Watchdog’s Feb 5th and Feb 7th letters calling for Lara to stop the rate hike.
“Consumers who are struggling to rebuild their lives after the wildfires should not be forced to pay higher premiums to prop up State Farm’s bank accounts,” said Carmen Balber, Executive Director at Consumer Watchdog. “State Farm has failed to demonstrate that an emergency rate increase is necessary.”
Consumer Watchdog’s analysis of State Farm’s filings found:
- No evidence that wildfire claims will reach the $7 billion State Farm suggests.
- $4.4 billion in reserves and surplus already available to cover claims.
- Up to $9 billion in reinsurance commitments from State Farm’s parent company after the company pays $250 million in claims per event, although details remain undisclosed.
- No explanation for why its parent company, State Farm Mutual Automobile Insurance Company, with $194 billion in surplus and reserves, cannot provide support to its affiliate, as happened in Texas.
