Ricardo Lara (pictured), California’s insurance commissioner, is torn – on the one hand wanting to examine State Farm’s books after an announcement that the insurer is discontinuing coverage for 72,000 houses and apartments in the state, and on the other conceding that there’s a danger in overregulating.
“This decision was not made lightly and only after careful analysis of State Farm General’s financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations,” State Farm said last week.
“State Farm General takes seriously our responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws. It is necessary to take these actions now.”
As announced, the California-specific actions will occur on a rolling basis starting July 3.
On Friday, speaking with KABC, Insurance Commissioner Lara cited a “real crisis” in California.
He told the station: “Insurance companies are not like utility companies. By law, they don’t have to be here, and when we try to overregulate, we’ll see what happened after the Northridge earthquake, when the legislature came in and tried to overregulate, and they no longer write earthquake insurance in California.”
Prior to State Farm’s announcement, Lara released his catastrophe modeling regulation earlier this month as part of the commissioner’s Sustainable Insurance Strategy.
“My Sustainable Insurance Strategy is intended to address decades-long neglected issues,” he said when the new phase was introduced. “Under outdated rules, the growth of climate-driven mega fires has supercharged insurance costs for many Californians while making insurance harder to find.
“We can no longer look solely to the past as a guide to the future. My strategy will help modernize our marketplace, restoring options for consumers while safeguarding the independent, transparent review of rate filings by Department of Insurance experts, which is a bedrock principle of California law.”
Image credit: Lorie Shelley, Public domain, via Wikimedia Commons
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