California's insurance commissioner Ricardo Lara spoke out after the state's largest home insurance provider announced that it would discontinue coverage for tens of thousands of policies this summer.
State Farm announced on March 20 that it would cut 72,000 home and apartment policies in California because of inflation, regulatory costs and increasing risks from catastrophes. The decision is a blow to California property owners, who already suffer under high insurance rates or scarce policy coverage.
"This is a real crisis," Commissioner Lara told KABC in an interview Friday.
The commissioner said he wants to investigate State Farm's finances, but warned that regulators can't go too far, or else they would risk pushing companies out of California entirely.
STATE FARM CUTS 72,000 CALIFORNIA HOME INSURANCE POLICIES: ‘DECISION WAS NOT MADE LIGHTLY’
"Insurance companies are not like utility companies," he told KABC. "By law, they don't have to be here, and when we try to overregulate, we'll see what happened after the Northridge earthquake, when the legislature came in and tried to overregulate, and they no longer write earthquake insurance in California."
Lara is spearheading an effort to enact the largest insurance reform in more than 30 years in California. He has proposed new regulations intended to change the models that insurance companies use to assess risk from catastrophes like wildfires or earthquakes, which he claims will stabilize premium costs and expand coverage.
But critics say he has not gone far enough, and they want the California legislature to intervene.
Carmen Balber, the executive director of Consumer Watchdog, a group that has criticized Lara's handling of California's insurance crisis, said State Farm's announcement shows that the current approach is not working.
"We have been urging for years now that California require insurance companies who want to sell home or auto insurance in California, sell to everyone who does the right thing, and it protects their homes. We urge the insurance commissioner to support that policy change, which needs to go through the legislature," Balber told KABC.
State Farm announced last year that it would stop accepting new home insurance applications in California due to "historic" increases in construction costs and inflation.
The company then raised rates by a whopping 20 percent for existing customers, according to the San Francisco Chronicle.
In 2022, insurance giant AllState also paused its sales of new home insurance policies in California due to wildfires and higher costs of doing business in the state.
According to KCRA, seven of the 12 largest insurance groups in California have either paused or restricted new homeowner's policies in the past year.
Lara told KABC that his proposed reforms would increase transparency and allow insurance companies to better assess risk, lower rates and expand insurance coverage for Californians.
"We bring the risk down in these communities, we keep insurers writing, then you get more insurers writing, you bring down the cost," he said.
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In the meantime, Lara said that the California Department of Insurance stands ready to help customers who have lost coverage find a new insurance writer.
"We will make sure we have an insurance expert with you so that we help you transition and connect you with insurance companies who are writing policies in California," he told KABC.
FOX Business' Kristine Parks and Julia Musto contributed to this report.
