Gage Skidmore, CC BY-SA 2.0 DEED, via Flickr, Cropped by Resist the Mainstream

Ricardo Lara, the insurance commissioner of California, spoke out after State Farm, the state’s largest home insurance provider, announced that it would discontinue coverage for tens of thousands of policies this summer.

On March 20, State Farm announced plans to cut 72,000 home and apartment policies in California due to inflation, regulatory costs, and increased risks of natural disasters. 

This is a significant blow to California property owners, who already deal with high insurance rates and scarce policy coverage. 

“This is a real crisis,” Commissioner Lara told KABC in an interview Friday. Lara said he wants to investigate the insurer’s finances, but warned that regulators can't go too far, or else they would risk pushing companies out of California entirely.

“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 at the head of an effort to enact the largest insurance reform in over 30 years in California, and has proposed new regulations intended to change models that insurance companies use to assess risk from catastrophes like wildfires or earthquakes, which he claims will stabilize premium costs and expand coverage.

Lara told KABC that the 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. 

Some critics, however, say he has not gone far enough, and want the California legislature to intervene. 

Carmen Balber, the executive director of Consumer Watchdog, one critic of Lara’s handling of the 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. 

Last year, State Farm announced that it would no longer accept new home insurance applications in California, due to “historic increases in construction costs and inflation.

Additionally, the company raised rates by approximately 20% for existing customers, according to the San Francisco Chronicle. 

State Farm isn’t the first insurance giant to pull out of the struggling state. In 2022, 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.

While the state continues to struggle, 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.