State Farm® in California: Understanding the issues

Rebuilding the insurance market

The path forward: 
A modern regulatory environment would foster a healthy insurance market in California, expanding coverage choices for consumers and ensuring the long-term availability of homeowners and commercial property insurance.

California’s FAIR Plan 
The FAIR Plan’s growth is unsustainable. (See California FAIR Plan’s Key Statistics and Data.) Reforms are needed to help guide the FAIR Plan back toward its intended mission as the insurer of last resort.

Reinsurance priced into rates
Insurance companies buy reinsurance to cover the costs of claims, and these reinsurance rates are also rising. Discussions are underway to factor in the net cost of reinsurance as a legitimate business expense when setting rates. This helps improve access to coverage and is already considered in rates across all states except California.

Predictive risk modeling
California regulators are working toward a system that allows the use of forward-looking, scientifically-based risk modeling, which can predict the likelihood of catastrophic events. As the severity and frequency of these events continue to increase, relying solely on 20 years of historical losses to determine rates is no longer effective in assessing current risk. Catastrophic risk modeling is used in almost every other state.

Rate process 
California regulators continue to work toward a streamlined rate application review process. Currently, California rate filings can take longer than six months to review and up to a year or more when an intervenor is involved. California is one of the only states that allows outside groups to participate in the rate review process.