California Commissioner Opposes Wildfire Rate-Setting Bill Insurers Support

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By Timothy DarraghBESTWIRE

June 9, 2020

California Insurance Commissioner Ricardo Lara is squaring off with property/casualty insurers over a bill that would ease regulation on rate-setting in return for insurers’ reentry into wildfire-prone markets.

The bill, A.B. 2167, passed the state Assembly June 8 by a 61-3 vote and now is in the hands of the senate, where, at a minimum, it will be discussed by the Insurance and Appropriations committees. 

It would create an Insurance Market Action Plan that would give consumers options they might not have, because insurers have fled fire-prone markets. Backers say by allowing an expedited process to provide coverage in areas more likely to burn albeit, with more costly rates private insurers still would be offering consumers choices and a better deal than the limited and expensive coverage provided through the FAIR Plan.

“The whole goal here is to get insurers not writing enough policies… a reason to engage,” Committee Chairman Tom Daly said when the bill reached an assembly committee (Best’s News Service, May 7, 2020).

According to a joint statement from the American Property Casualty Insurance Association and The Personal Insurance Federation of California, the prolonged wildfire threat spurred by climate change “has changed the California landscape and challenged the availability of insurance in high fire-threat regions. A.B. 2167 strikes a balance that provides homeowners in wildfire zones access to more choice and competition among insurers based on price and coverage while avoiding costly and more limited FAIR Plan coverage.”

The bill still protects consumers by requiring a rate review by Lara’s office and allows for transparent consumer review of rates, it said.

Insurers have to be “judicious” in how much risk of loss they can tolerate after sustaining $26 billion in losses in recent years due to California wildfires, Christian Rataj, senior regional vice president for the western region for the National Association of Mutual Insurance Companies, said in a statement.

“Current law and regulations hinder insurers’ ability to address consumer needs in wildfire-prone areas and creates a situation where low-wildfire-risk-of-loss consumers are forced to subsidize the rates of higher-risk properties,” he said. “This is unfair to low-risk-of-loss consumers and detrimental to the health of the insurance marketplace.”

Rataj added consumer advocates will still maintain the right to intervene in the rate filing process. The bill does not change the important legal requirement that rates not be excessive or discriminatory, he said.

“In short, A.B. 2167 is a pro-consumer choice, and pro-insurance availability,” Rataj said, “a bill with no real downside for consumers.”

Lara sees it differently.

“A.B. 2167 is an insurance industry ‘wish list,’ with nothing to help consumers,” he said in an emailed statement. “The bill is going to lead to higher rates and weaker consumer protections at a time California can least afford it. The bill does not further the purposes of Proposition 103 passed by voters in 1988 to stop discriminatory insurer rating practices and provide oversight for insurance rates.”

Lara also said A.B. 2167 does nothing to stop the rise in nonrenewals or require insurers to write policies in high-risk areas.

“No consumer groups support this bill, because A.B. 2167 does not address the things that first responders and consumers have identified as necessary namely, give incentive for home hardening and wildfire mitigation that will reduce the risk of devastating fire, save lives, bring down the cost of insurance, and make it widely available,” he said.

Consumer Watchdog is among those groups against the bill, calling it “a sneak insurance industry legislative attack” while the public’s attention is on the COVID-19 pandemic and police brutality protests. The cost to California homeowners, it said, would be in the billions. 

Lara further criticized the measure for letting insurers include reinsurance costs in rate-making, a cost that provides no benefit to consumers, he said. Reinsurance premiums, he said, lack transparency and are frequently much higher than those evaluated through an “objective” regulatory process.

Lara also fired a shot over another related measure, S.B. 292, which he said would raise the price of insurance and weaken protections by allowing insurance companies to use “black box” catastrophe models in calculating their rates.

(By Timothy Darragh, associate editor, BestWeek: [email protected])

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