The insurance company has filed for an increase on personal umbrella liability coverage, affecting hundreds of thousands of California households. Meanwhile, State Farm will participate in a hearing Tuesday to decide whether homeowners and renters in the state will see rates rise on average hundreds of dollars a year.
SUSAN WOOD
NORTH BAY BUSINESS JOURNAL
3 minute read
Coinciding with an emergency property rate increase request pending for a million California customers, State Farm is seeking a 39% rate hike on personal umbrella policies.
This type of coverage, called PUP, provides extra liability coverage amounting to $1 million, sometimes $2 million, for claims involving extreme circumstances that may include bodily harm or property damage as well as legal fees.
The Illinois-based insurer, the largest in California, filed on Feb. 25 for the increase which would affect more than 430,000 policyholders. If approved, the increase would take effect in August.
“Rate changes are driven by increased costs and risk and are necessary for State Farm General Insurance Company to deliver on the promises it makes every day to our customers,” spokesman Sevag Sarkissian told the Business Journal in a written response.
He added that “personal liability claims costs have risen dramatically across the industry due to more accidents, escalating medical bills and larger legal settlements.”
The filing requires approval from the California Department of Insurance.
Joel Laucher, preparedness advocate with San Francisco’s United Policyholders, speculated why the rate hike requested specifically targeted umbrella policies.
“State Farm (could be) looking to make sure every source of income is being maximized. The increased income from umbrella policies isn’t going to do much to fill the hole from the homeowner policy’s wildfire losses — but perhaps every little bit helps,” he said.
Plus, these types of filings aren’t typically monitored by Consumer Watchdog, Laucher pointed out. Its Executive Director Carmen Balber waived comment on the matter.
Instead, Balber’s more interested in what transpires from the insurer’s pending rate hike request on properties.
Homeowners, renters rate hikes
California Insurance Commissioner Ricardo Lara is weighing whether to approve the insurance company’s request to raise rates for homeowners and renters.
Consumer Watchdog contested a reported $921 million emergency request, and the three parties consisting of five officials from the Department of Insurance; five State Farm executives; and three legal experts from the Los Angeles-based advocacy group met on Feb. 26 to discuss the request.
Beyond reminding the insurer it had already filed for three other rate hike requests, Lara told the company that climate change will continue to pressure the industry each year, producing firestorms somewhere in the state. That’s one reason the state’s new Sustainability Insurance Strategy was established, to structure rates in the future, not the past.
The emergency-related filing amounts to a rate hike of 22% and 15% for home- and condominium owners; 15% for renters; and 38% for dwelling coverages on rentals.
The state’s top insurance official insisted the rate hikes and requests are leading to “elevated anxiety among insureds,” according to the meeting transcript.
Insurance transcript Full Complete CERTIFIED COPY.pdf
State Farm countered, stating the viability of its financial rating is at stake if it can’t regain a portion of what it is paying out in claims associated with the Los Angeles area fires, CEO Dan Krause said in the transcript.
Facing a “downgrade” in capital risk, the insurer points to the wildfire disaster bringing its declining surplus to a low of $600 million. This is down from last year’s $1 million.
Lara asked State Farm to pursue a $500 million capital infusion from its parent company, State Farm Mutual Automobile Insurance Company, to help cover the high costs it’s facing from these devastating fires, the insurance department said in a March 14 statement.
Total estimates from the wildfires are expected to reach nearly $8 billion, the transcript revealed.
During the session, Consumer Watchdog criticized how the insurer structured its level of reinsurance, the type of coverage insurance companies secure, in order to cover such massive losses.
Consumer Watchdog joined Lara in telling State Farm it needs to consider the rules imposed by Proposition 103, which is the insurance reform measure passed in 1988 that limits arbitrary insurance rates and practices.
“We don’t think this is justified,” Consumer Watchdog Litigation Director William Pletcher said in the transcript. “Nothing prevents it from new rate approvals.”
A formal hearing started April 8. The judge has 10 days to rule once the hearing ends, which could last a number of days.
In the first day of the hearing, State Farm negotiated lower rates, including a proposal to drop the homeowners’ from 22% to 17%.
Editor’s note: This story has been updated to reflect changes in negotiations in the hearing involving the emergency rate increase request.
