State Farm collected $350 million in premiums from Washingtonians over a decade by betting against earthquakes in the state. It concluded that wasn’t enough.
In 2014, the company filed documents with Washington state’s insurance regulator seeking approval to raise earthquake rates around the state, including by 39 percent for commercial property in King County and by 117 percent for Grays Harbor and Pacific counties.
A state insurance official called State Farm’s proposed profit “absurdly high” and objected to any rate increase, according to state records. But the regulator, negotiating on the public’s behalf, was at a disadvantage: Insurers in Washington don’t have to offer earthquake insurance if they dislike the terms, and State Farm is the state’s largest licensed provider of quake coverage.
When the company refused to back down, Washington’s insurance regulator approved the rate hike, as requested.
That lopsided negotiation is typical in Washington, where companies almost always get the earthquake rates they ask for, an examination by The Seattle Times has found. And it helps explain why Washington home and business owners either pay more to protect themselves against earthquakes, or, like most, choose to go unprotected.
Even many who are willing to pay the high rates are forced to get coverage through a riskier, loosely regulated market of insurers because the regulated carriers are allowed to pick and choose who they will and won’t cover.
Mike Kreidler, who has served as Washington’s elected insurance commissioner since 2001, acknowledged in an interview that his office can’t prove an earthquake rate is excessive. Insurers justify their rates with closely guarded computer models that they don’t share with regulators. Kreidler, whose office oversees the entire insurance industry in the state, said he lacks the staff and means to develop quake models, like California does.
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Matthew Doig 