Topline:
Insurance Commissioner Ricardo Lara is weighing an emergency 22% rate hike request by State Farm, the state’s largest insurer, following the Los Angeles fires. After first hitting pause on the request last month, he met with State Farm executives directly to get more information and said he’d decide what to do next by the end of this week.
Why it matters: Approving it would raise bills for millions of Californians, given that State Farm has 16% 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 into the front lines of climate politics — with the pocketbooks of nearly every Californian at stake.
Why he would grant it: 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 State Farm’s California customers.
Why he wouldn’t grant it: 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 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. State Farm told Lara last week that it would need an even higher rate increase than 22% before it would consider writing new policies in California again.
What else to keep in mind: State Farm is also concurrently negotiating a 30% 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% interim rate hike while continuing negotiations over the bigger rate increase, which they said they weren’t convinced was warranted.
For more, read the full story in POLITICO’s California Climate newsletter.
This story is published in partnership with POLITICO.