State Farm fires a warning shot at homeowners

But this company just fired the first shot in what might become a war against California home and apartment owners, one with eventual costs amounting to billions of dollars. Allstate Insurance one week later admitted it has already joined in.

The State Farm strike came on May 26, when it announced to little fanfare that it has stopped taking applications for new property and casualty insurance in this state because of extreme risks from wildfires.

Take note: the company did not stop writing new car insurance policies, thus ensuring continual growth in the total premium dollars it takes out of California. Neither State Farm nor Allstate asked permission from Insurance Commissioner Ricardo Lara, which appears to be required under the 1988 Proposition 103.

"They cannot legally just do this on their own," said Harvey Rosenfield, founder of the Consumer Watchdog advocacy group and author of that proposition, the law that governs insurance rates in California. "Any refusal to write new policies will affect rates people pay, and the commissioner must approve anything affecting rates."

Giving a hint that this is really a pressure tactic, State Farm did say it would work with the California Department of Insurance to eventually resume business as usual.

Translation: State Farm wants Lara to OK the $700 million in property insurance price increases it currently seeks. Allstate has similar aims.

But Lara is constrained by Prop. 103, which limits what companies can charge. The measure has saved consumers well over $100 billion in premiums over its 35 years.

Insurance companies hate this, even with State Farm the largest operator in California, taking in about $7 billion in property insurance premiums here each year and controlling almost 9 percent of the market.

Several other companies also are pushing for insurance rate increases, all claiming risks from wildfires justify almost any price.

At the same time, Lara has said he wants companies to discount policies for property owners who mitigate wildfire risks via measures like fire resistant roofs and enclosed eaves. In a partial response, State Farm is boycotting the entire state, not merely wildfire-prone areas.

If other big operators like Farmers, GEICO and Mercury follow State Farm and Allstate, it won't be the first time this industry boycotted California when companies felt profits were in peril.

That also happened in the mid-1990s, when then-Insurance Commissioner Chuck Quackenbush, a former Republican assemblyman, acquiesced as the industry black-listed California. The dispute then was over a rule requiring companies selling homeowner insurance also to offer earthquake coverage.

The companies refused, wounded by payouts after the 1994 Northridge Earthquake, and stopped selling new property insurance. Some outfits (like the former 20th Century Insurance) cancelled all property policies as they expired. Several firms recently resumed this practice in areas prone to wildfires.

Quackenbush, whose elections in 1994 and 1998 were financed largely by insurance companies, could have responded by shutting down ultra-profitable car insurance sales from any company refusing to sell property and quake insurance.

His failure to act caused the Legislature in 1996 to create the California Earthquake Authority (CEA), now the state's pre-eminent quake insurer. To the CEA's immense good fortune, a lull in very large quakes since 1994 has allowed a buildup of many billions of dollars in reserves to pay claims if and when large new temblors occur.

But the reality was that Quackenbush caved to the companies. Later, he was forced to resign in an unrelated year-2000 scandal. Eventually, he became a sheriff's deputy in Florida, where he served until 2016, but was again forced to resign, this time after posting alleged racially controversial comments on social media.

The shameful Quackenbush precedent should guide Lara as he decides how much to grant insurance companies in their current rate increase cases.

Rosenfield insists Lara must okay few or none of those premium increases.

"It's excessive," he said. "They don't want to comply with Prop. 103. They're pressuring Lara to go along with them despite the law. There can be no doubt this is a pressure tactic and Lara must not do their bidding."