California green lights massive insurance hikes

State Farm, the largest provider of homeowner insurance policies in California, has been approved by the Department of Insurance to raise its average rates by 20% in the state next year.

Driving the news: The rate increase comes at a challenging time for California’s insurance market, with residents experiencing fewer options and higher prices as major companies pause or restrict new business.

The backstory: State Farm had previously announced in May that it would stop accepting new applications for property and business policies to improve its financial health, citing higher construction costs, growing risk from catastrophic events like wildfires, and challenges related to insuring its own business.

• Insurance Commissioner Ricardo Lara has proposed policy actions to promote market stability, which include allowing insurance companies to use computer models to plan for future losses and recover costs, while companies would agree to insure a specific percentage of high wildfire-risk homes.

• The approval process for rate change requests by insurance companies has been a concern, with insurers urging the Department of Insurance to expedite the approval process and the department claiming that incomplete applications contribute to delays.

What they’re saying: The recently-approved rate change is attributed to increased costs and risks, according to company spokesperson Sevag Sarkissian.

• Final details of the proposed changes and new regulations are still pending approval, and Lara acknowledged that there will be continued uncertainty in insurance pricing and availability.

• Consumer Watchdog, an organization that frequently intervenes in rate cases, challenged State Farm’s rate change but ultimately agreed to the increase, though it had hoped for more information to justify it.