CALIFORNIA FOCUS
FOR RELEASE: FRIDAY, JUNE 23, 2023 OR THEREAFTER
BY THOMAS D. ELIAS
“STATE FARM FIRES A WARNING SHOT
AT HOMEOWNERS”
You would
never know it by watching the almost ubiquitous television commercials
advertising State Farm Insurance to sports fans on a wide variety of telecasts.
But this
company just fired the first shot in what might become a war against California
home and apartment owners, one with eventual costs amounting to billions of
dollars. Allstate Insurance one week later admitted it has already joined in.
The State
Farm strike came on May 26, when it announced to little fanfare that it has
stopped taking applications for new property and casualty insurance in this
state because of extreme risks from wildfires. Take note: the company did not
stop writing new car insurance policies, thus ensuring continual growth in the
total premium dollars it takes out of California. Neither State Farm nor
Allstate asked permission from Insurance Commissioner Ricardo Lara, which
appears to be required under the 1988 Proposition 103.
“They
cannot legally just do this on their own,” said Harvey Rosenfield, founder of
the Consumer Watchdog advocacy group and author of that proposition, the law
that governs insurance rates in California. “Any refusal to write new policies
will affect rates people pay, and the commissioner must approve anything
affecting rates.”
Giving a
hint that this is really a pressure tactic, State Farm did say it would work
with the California Department of Insurance to eventually resume business as
usual.
Translation:
State Farm wants Lara to OK the $700 million in property insurance price
increases it currently seeks. Allstate has similar aims.
But Lara
is constrained by Prop. 103, which limits what companies can charge. The
measure has saved consumers well over $100 billion in premiums over its 35
years.
Insurance
companies hate this, even with State Farm the largest operator in California,
taking in about $7 billion in property insurance premiums here each year and
controlling almost 9 percent of the market.
Several
other companies also are pushing for insurance rate increases, all claiming
risks from wildfires justify almost any price.
At the
same time, Lara has said he wants companies to discount policies for property
owners who mitigate wildfire risks via measures like fire resistant roofs and
enclosed eaves. In a partial response, State Farm is boycotting the entire
state, not merely wildfire-prone areas.
If other
big operators like Farmers, GEICO and Mercury follow State Farm and Allstate,
it won’t be the first time this industry boycotted California when companies
felt profits were in peril.
That also
happened in the mid-1990s, when then-Insurance Commissioner Chuck Quackenbush,
a former Republican assemblyman, acquiesced as the industry black-listed
California. The dispute then was over a rule requiring companies selling homeowner
insurance also to offer earthquake coverage.
The
companies refused, wounded by payouts after the 1994 Northridge Earthquake, and
stopped selling new property insurance. Some outfits (like the former 20th
Century Insurance) cancelled all property policies as they expired. Several
firms recently resumed this practice in areas prone to wildfires.
Quackenbush,
whose elections in 1994 and 1998 were financed largely by insurance companies,
could have responded by shutting down ultra-profitable car insurance sales from
any company refusing to sell property and quake insurance.
His
failure to act caused the Legislature in 1996 to create the California
Earthquake Authority (CEA), now the state’s pre-eminent quake insurer. To the
CEA’s immense good fortune, a lull in very large quakes since 1994 has allowed a
buildup of many billions of dollars in reserves to pay claims if and when large
new temblors occur.
But the
reality was that Quackenbush caved to the companies. Later, he was forced to
resign in an unrelated year-2000 scandal. Eventually, he became a sheriff’s
deputy in Florida, where he served until 2016, but was again forced to resign,
this time after posting alleged racially controversial comments on social
media.
The
shameful Quackenbush precedent should guide Lara as he decides how much to grant
insurance companies in their current rate increase cases.
Rosenfield
insists Lara must okay few or none of those premium increases.
“It’s
excessive,” he said. “They don’t want to comply with Prop. 103. They’re
pressuring Lara to go along with them despite the law. There can be no doubt
this is a pressure tactic and Lara must not do their bidding.”
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