Latest news with #Prop103
CBS News
09-04-2025
- Business
- CBS News
California officials seem receptive to State Farm Insurance's emergency rate hike request at Oakland hearing
At an Oakland hearing Tuesday, attorneys for State Farm Insurance made their case for an emergency rate hike that could impact insurance rates for millions of Californians. State Farm -- the state's largest insurer -- is asking California's Department of Insurance for a 17% emergency rate hike. But first, they will have to convince a judge. The company has already put in other rate requests over the past year, but this emergency request comes as a direct response to the deadly Los Angeles County wildfires in January which destroyed more than 18 buildings -- most of them homes. State Farm estimates it will have to pay out roughly $7.6 billion to fire survivors. The company says those payouts will deplete its reserves. A consumer watchdog argues policy holders shouldn't be on the hook. While there wasn't a lot of drama on the first day of the hearing, it is part of a process that will likely dramatically increase the amount it costs to buy homeowners insurance in California With catastrophic wildfires becoming commonplace in California, the home insurance market is in crisis. State Farm says it's been slowly losing money for the last ten years. On Tuesday in Oakland, its lawyers sat before Administrative Law Judge Karl Seligman to argue that an interim rate hike is justified to keep the company solvent. "State Farm General's surplus, which is the money that's available to pay claims, has fallen from about $4 billion in 2015 to about $1 billion in 2024," said State Farm counsel Katherine Wellington. "Following the fires in Los Angeles, State Farm General has estimated that its surplus will decline to about $600 million." They said that's not nearly enough to pay claims if another disaster should strike. There are even warnings that the company's policies soon may not be acceptable to some lenders for people seeking mortgage loans. The company is asking Insurance Commissioner Ricardo Lara for the emergency rate hike that would be imposed on all State Farm policy holders statewide to refill its cash reserve. At the hearing, state officials seemed sympathetic to the idea. "It is not in California consumers' best interest to allow State Farm General, the largest property insurer in California by far with 20% market share, to go bankrupt or to otherwise withdraw from the California market," said California Department of Insurance attorney Nikki Kennedy. Harvey Rosenfield, founder of the state and national advocacy group Consumer Watchdog , argues otherwise. The group was also party to the hearing. Rosenfield said Prop 103, which regulates the state's insurance market, requires that companies first prove that they need rate increases. He says State Farm has been reluctant to do that. "The way it's been engineered by State Farm, it's a fast track," said Rosenfield. "They want the commissioner to approve their rate increase now, and then figure it out later whether it was justified or not. That's not how the law works in California." There's reason to be skeptical. State Farm was requesting a 30% increase last June, before the Los Angeles county wildfires. After the fires, they initially reduced that amount to 22%. Now that they're being required to show proof, they announced at the hearing that they've lowered the request to 17%. As a result, Consumer Watchdog attorneys asked the judge to strike the evidence being presented. "We've been demanding this information for nine months. And last night, on the eve of this hearing, State Farm sent us six documents," said Rosenfield. "We haven't even had a chance to look at it." However, industry expert Karl Susman told CBS News Bay Area he thinks Consumer Watchdog is just stalling the process. "Can we just get the facts here?" Susman asked. "If they need the rate increases, show us the proof. Nobody cares if it was submitted an hour late or a day late. If the proof exists, let's see it. Let the insurance commissioner decide what he's going to do." Lara may have already decided. He gave provisional approval of the 22% rate hike last month and said he will let the judge decide if it's justified. At the hearing, the California Department of Insurance's lawyers were clear on the state's position. "Normal rules don't apply," said Kennedy. "We're on the Titanic and we see the iceberg. Now is not the time to argue about where to put the deck chairs. There is still time, your honor, to turn this ship around. If we don't, over three million Californians are going in the water. And there are not enough life boats." It's probably not a stretch to compare California's insurance market to a sinking ship. Now the judge will decide if State Farm's claims of poverty actually hold water.
CBS News
05-02-2025
- Business
- CBS News
State Farm emergency rate hike request raising alarm bells for some
The state of California recently implemented changes to its home insurance market when the wildfires in Los Angeles happened. Now, the largest insurer in the state is requesting a rate increase that would affect every one of its customers, and likely drive up the price of coverage for everyone else. It's been less than a month since wildfire decimated entire neighborhoods in Pacific Palisades and other communities in Los Angeles, and now the losses are being tabulated. State Farm General, California's largest insurer, said they have received more than 8,700 claims and already paid out more than a billion dollars from its nearly depleted cash reserves. In a letter to CA Insurance Commissioner Ricardo Lara, the company said, "Although reinsurance will assist us in paying what we owe to customers, the costs of these fires will further deplete capital from are requesting that you take emergency action to help protect California's fragile insurance market by immediately approving interim rate increases on these filings, with rates to be effective May 1, 2025..." Karl Susman, a broker and industry expert, explained the situation. "The problem is the industry in California has pretty much been upside down for about a decade," he said. "And it's been slowly getting eroded because the prices have not been matching the exposure that we've had." Most people are surprised to learn that California has some of the cheapest home insurance in the country despite now ranking second for risk of loss. Homeowners here pay an average of $2,000 a year, while in Oklahoma it's three times that amount. So now, State Farm is requesting an average rate hike of 22 percent for homeowners, 15 percent for renters and condo owners and 38 percent for those owning rental properties, no matter where they are located in the state. The company said it needs the money to refill its capital reserve and said its credit rating has taken such a hit that State Farm insurance may no longer be accepted by some mortgage companies. "And this rate increase is really just the beginning of that," said Susman. "And I wouldn't say that it's backfilling premiums to be able to have the ability to pay claims, but it's really bringing the rate to where it should have been all along, considering the exposures that we have here. And now, we're going to start seeing all the carriers starting to do that. So, we're not in a situation when the next wildfire comes, where companies are running out of money and having to look to see how they're going to pay their claims." But Harvey Rosenfield, who wrote Prop 103, which regulates the state's insurance market, said he doesn't buy the hysteria. He said State Farm already had a request to the state for a 30 percent increase in June, well before the L.A. fires. "Now that the wildfires have happened," said Rosenfield, "State Farm is trying to take advantage of this tragedy to say that they need an immediate, emergency rate increase of 22 percent which could be, like, 3/4 of a billion dollars. We really don't know because they haven't justified that." Rosenfield said State Farm General, the company that insures properties in California, is claiming to be broke while its parent company, State Farm Mutual is worth hundreds of billions of dollars. "But State Farm wants to leverage — with the threat that it's the biggest company in the state and its financial condition is terrible — wants to leverage a bailout," he said. "This is forcing the public to capitalize, to fund, a private corporation that actually has access to resources of its parent company. And it's the parent company that should be bailing out State Farm, not the public." Who should bear the cost of the LA wildfires is up for debate, but there is no question that the risk of fire in California has grown in general. And it seems clear that insurers won't resume writing policies in the state until they are sure they won't be losing money by doing so. If Insurance Commissioner Lara approves the rate increases, which could happen in the next few days, they would go into effect when policies are renewed, as of May 1 of this year.
