The California insurance chief says it is close to the "solution" in terms of the increase of the state farm - Daily News

The State Insurance Commissioner, Ricardo Lara, said he is expected to announce “a solution” on an emergency increase in State Farm this week, who could see the insurer to provide some of the financial responsibility to cover the losses from the Forestorms historian in Los Angeles.

“For me, this is what the state farm consumers should humiliate most of the financial difficulties or the problems in which the company is,” Lara said on Saturday, March 8, on the outskirts of Santa Monica to help the Los Angeles residents affected by January 7-8 in Pacific Palisades and another.

“Where is the company -mama? If there is a financial crisis, it will be applied equitably to everyone, and they said. “We hope we will come up with a solution.”

See also: State Farm says Wild -Fire losses total $ 7.6 billion

Lara, who said he was still studying the financial data on the increase in rate, refused to provide details about the solution she is considering to help the largest state -owned insurance insurer to avoid financial collapse.

“As they said, the higher rates will not be their only strategy. I want to know what the rest of the strategy is to get its financial house in order, ”he said. “I am the greatest writer of homeowners in the state. I want to know how future financial problems will avoid in their company. With the continuous climatic changes we experience, we did not even enter the summer fire season. “

Climatic changes are a major cause of fires In the United States, increase in frequency, length and size of fire seasons.

“I have never seen Santa Ana’s winds before. We can no longer afford a regulatory scheme that is cemented for another 30 years. It’s impossible, he said. “The climate changes faster. Social and economic problems change rapidly, as you can now see in our country and everything that affects the insurance market. We want to grow in California. It is a profitable market, but it must be accurately price to make its risk. “

States Farm, which is made up of several mutual companies in the US, provides over 1 million policemen to provide California house owners.

See also: The increase of the rate from states Farm has been reduced by the California regulatory authority

The insurer’s financial strait were discussed during A meeting on February 26 in Oakland Between the insurance giant and Lara, who took into account the hiking since State Farm made the request of February 3 when he was hit with thousands of requests to cover the losses of property from fire storms.

The executives of the state farm said at the meeting that it needs an emergency increase of 22% in California to cover losses of over $ 7.9 billion. Lara initially rejected the requestSaying on a Friday, February 14, a letter to the Farm State directors that he needs more information before he can approve an increase.

Dan Krause, President and CEO of California from State General Insurance Co., said he could request financial assistance from State Farm Bloomington, parent, based in Ill., Mutual Insurance States, to help keep the financial solvent insurer.

“It’s possible, yes,” Krause told Lara.

CFO from the State Farm Mark Schwamberger He said that the financial solvency of the activity in California became precarious behind Fires.

“The general of the state farm, the legal entity, has the ability to pay its requests and to go further with the fires,” Schwamberger told February 26. “However, it is in a dramatically different and weakened position. As we enter the fire season, he is in danger, ”he said. “It is a very serious situation and, when you think of the risk -based capital, we only fall into several levels of regulatory action that could require Illinois and others.”

Asked if State Farm in California should reach its paid capital to help relieve financial task, Lara said it has more options.

“Once we really look at their number, they should do a few things, because they themselves said that the increasing rates will not solve this financial crisis in which they are,” he said. “If it’s not just rates, what else are you doing to get your financial house in order?”

Krause said that reinsurance – a type of insurance for insurance in catastrophic events – would cover most of the losses. Reinsurance, said State Farm, will reduce losses to about $ 612 million.

This includes $ 212 million in losses kept after reinsurance and special $ 400 million state evaluation to pay California’s correct planan insurer of the last solution.

General States said he received over 9,500 fire requests and paid customers over $ 1.75 billion.

Democracy works

Lara too and defended the order of February 12 In order for the fair plan to perceive a special assessment of $ 1 billion to private insurance providers, after a record number of equitable plan applications were submitted following the January disaster.

At least half of this evaluation is pushed to the property owners in California. The fair plan allows its member insurance companies to collect an evaluation from consumers – even those who are not directly affected by fires.

“By democratizing these rates, it helps to maintain a market and maintains the somewhat low rates. It is the same question I receive from people in northern California. They say, “Why should we pay for people from LA?”,

Lara said that the assessment of $ 1 billion was “important, so that we keep insurers.”

Only this certainty – that the insurers will not bear the total loss – “create consciousness around making heavy decisions in the future regarding the place where we build, as we build the mitigation measures,” according to Lara.

Creating a defense space around houses and other structures is one of the most effective attenuation strategies, he said. This space, clear of vegetation and combustible materials, acts as a buffer area that slows or even stops the advance of a fire, giving firefighters the chance to directly combat the flames.

Plan correct now and later

Lara also said that the California property insurance industry is directed in the correct direction with the correct plan.

“When we first started looking at the correct plan in 2019 and obtaining information about what was happening – with a tightening market and the rates increasing – there was this fear that if the equitable plan would be insolvent, the insurers themselves would be on 100%hook,” said Lara.

“This fear forces the insurance companies alone to withdraw from the markets. But the consequence is the place where people go? They go to the correct plane. It is this type of death cycle, in which people are given up on their policies, to be introduced in the correct plane and to create more the possibility that the correct plan will have additional financial problems, ”he noticed. “The insurance companies continue to say:” Hey, we can no longer write because we will eventually be on the hook for the correct plan. “

Lara said that this “death cycle” phenomenon is why its department has made reforms of the fair plan, such as raising coverage limits in 2019 (to $ 3 million) for housing, which have not been raised since the 1970s and offered additional access to resources, such as adding a credit line.

“We put all these guarantees in the correct plan, so until they come to us, we will know if they need an evaluation,” he said.