State Farm® in California: Understanding the Issues

Rebuilding the insurance market

The way forward:
A modern regulatory environment would promote a healthy insurance market in California, expand insurance options for consumers, and ensure the long-term availability of homeowners and commercial property insurance.

California's FAIR Plan
The growth of the FAIR plan is not sustainable. (See Key statistics and data from the California FAIR Plan.) Reforms are needed to return the FAIR Plan to its intended role as an insurer of last resort.

Reinsurance priced into tariffs
Insurance companies purchase reinsurance to cover the cost of claims, and these reinsurance rates also increase. There is ongoing discussion about including the net cost of reinsurance as a legitimate business expense when setting rates. This helps increase access to coverage and is already reflected in rates in all states except California.

Predictive risk modeling
California regulators are working on a system that will enable the use of forward-looking, science-based risk models that 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 loss rates is no longer effective in assessing current risk. Catastrophic risk models are used in almost every other state.

Evaluate the process
California regulators continue to work on a streamlined rate application review process. Currently, reviewing California fee requests can take longer than six months, and if an intervenor is involved, up to a year or longer. California is one of the few states that allows outside groups to participate in the rate review process.