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As California’s insurance market continues to reel from the impacts of wildfires, another chapter of uncertainty unfolded this week during an emergency hearing held by the California Department of Insurance (CDI) in Oakland. At the center of the debate was State Farm, the state’s largest property insurer, requesting a 17% rate increase to address the financial pressures mounting from catastrophic wildfire losses.
Insurance expert Karl Susman joined The Afternoon News with Kitty O'Neal to provide an in-depth analysis of the proceedings and explained why this decision could have long-lasting implications for California homeowners and the broader insurance market.
A Financial Firestorm: Why State Farm Requested an Emergency Increase
During the hearing, State Farm argued that the 17% "interim" rate increase was critical to maintaining solvency. The company’s representatives presented data showing that, without immediate relief, their California operation faced the risk of downgrades from credit rating agencies such as AM Best and S&P. These downgrades, they warned, could trigger a domino effect:
- Lenders may refuse to accept State Farm policies as sufficient collateral.
- Homeowners with mortgages could face loan recalls.
- Hundreds of thousands of policyholders might lose coverage if the company is forced to reduce exposure.
Susman explained that this isn’t just about corporate profit — it’s about keeping the market functioning.
“If State Farm can’t meet financial solvency standards, they’ll have no choice but to reduce exposure,” Susman said. “And that means more Californians ending up on the FAIR Plan, which was never designed to handle this volume.”
The Department of Insurance: A Surprising Ally
The California Department of Insurance (CDI), often seen as a watchdog for consumers, took an unexpected supportive stance during the hearing.
The department agreed that the rate increase was “justified and necessary” under the current circumstances.
Susman noted that this rare alignment between the CDI and an insurer highlights the severity of the crisis.
“The Department understands that this is about stability,” Susman emphasized. “If the state’s largest insurer can’t stay solvent, the repercussions could be catastrophic for the entire market.”
Moreover, the CDI included a crucial safeguard in its approval: if State Farm’s projections prove overstated, the company has committed to refunding policyholders the difference, with interest. This assurance has made the proposal more palatable to the public, at least in theory.
Consumer Watchdog: Crying Foul
Consumer advocacy group Consumer Watchdog strongly opposed the emergency rate increase, arguing that it violated California’s Proposition 103, which mandates that all rate hikes be publicly justified and approved.
The group’s three main points of contention included:
- Financial hardship should not be used as justification for a rate hike.
- State Farm allegedly waived certain procedural rights that would have allowed for a proper emergency filing.
- The company’s financial problems were self-inflicted, stemming from mismanagement rather than regulatory restrictions.
While Susman acknowledged the group's concerns, he pushed back on the idea that companies could simply “declare hardship” and raise rates at will.
“This idea that companies can just ‘declare hardship’ and raise rates is nonsense,” Susman countered. “No insurer wants to go through an emergency proceeding. It’s public, it’s political, and it invites intense scrutiny. This is a last resort.”
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Inside the Hearing: High Stakes, Little Power
While the hearing generated significant attention, Susman pointed out that it was largely “theater.” The administrative law judge overseeing the hearing has no authority to make the final decision. Instead, the judge's role is to gather evidence, testimony, and public comments before submitting a recommendation to the Insurance Commissioner.
Given that the CDI had already expressed support for the rate increase, Susman believes approval is virtually certain.
“At this point, it’s just about timing,” Susman said. “The Commissioner will likely approve the rate increase within weeks. The data supports it, and politically, the refund provision gives them cover.”
A Broken Model: Why This Keeps Happening
The State Farm case is symptomatic of a much larger problem with California’s outdated insurance framework. Under Proposition 103, insurers are forced to base rates on historical losses, not projected future risks. In an era marked by climate-driven disasters and escalating wildfire losses, this makes it nearly impossible for insurers to accurately price policies.
Susman explained, "You can’t sell a $1,000 policy that costs $1,500 to provide — not sustainably, anyway. That’s why we’re seeing carriers pull out, pause new business, or dump risk onto the FAIR Plan."
What Happens Next for Homeowners
If the 17% increase is approved, State Farm policyholders will see their premiums rise within months. But Susman argued that the alternative — widespread policy cancellations and market exits — would likely push even more homeowners to the FAIR Plan, California’s insurer of last resort.
For homeowners navigating this volatile market, Susman offered several pieces of advice:
- Don’t let your policy lapse. Once coverage is dropped, finding a new policy in a high-risk area is nearly impossible.
- Shop early and compare. Start your renewal process months in advance, as underwriting timelines are longer than ever.
- Review your dwelling coverage limits. Rebuilding costs have soared; ensure your policy reflects current construction pricing.
- Invest in mitigation. Home-hardening improvements (fire-resistant roofs, defensible space, ember-resistant vents) can sometimes qualify for discounts — and may soon become mandatory.
- Document everything. Keep an inventory of belongings, receipts, and photos. If a claim occurs, you’ll need it to expedite payment.
A Broader National Trend
California’s insurance crisis is not unique. Florida, Texas, and Colorado have all seen insurers retreat or raise rates due to severe weather losses.
What makes California stand out, however, is its regulatory rigidity. Unlike other states that allow insurers to adjust pricing dynamically, California’s framework — designed to protect consumers in the 1980s — has become a bottleneck for the 2020s.
“Regulators everywhere are watching California,” Susman observed. “If the largest insurer in the nation can’t operate profitably here, that sends a powerful message.”
The Bottom Line: A Turning Point
The outcome of this hearing will likely set the tone for the next decade of California insurance regulation. If the CDI approves the rate increase — as most expect — it may signal a shift toward pragmatism over politics.
For consumers, the reality is sobering: higher rates are coming, and so are harder choices.
“People want affordable insurance, but they also want it to be there when disaster strikes,” Susman said. “You can’t have one without the other. The challenge is finding that balance — and right now, California is struggling to do it.”
Key Takeaway
California’s insurance market is at a crossroads. The State Farm emergency hearing is both a warning and an opportunity: a reminder that without modernization, even the strongest insurers can falter. For homeowners, it’s time to stay informed, prepared, and proactive — because stability, for now, comes at a cost.
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