California Officials Warn Of ‘Unsustainable’ Taxpayer Costs In Disaster Bill

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August 13, 2019

SACRAMENTO — A bill that state finance officials warn could saddle California taxpayers with expensive and unnecessary premiums for disaster insurance is sweeping toward passage in the Legislature, so far without dissent.

SB290, sponsored by Insurance Commissioner Ricardo Lara, would authorize the governor to directly purchase policies and other financial products from insurance companies in hopes of mitigating California’s costs from natural disasters such as wildfires and floods. It would change current law that requires state agencies to buy insurance through a broker selected in a competitive bidding process, something intended to lower costs to taxpayers.

Lara, who promoted the measure at an insurance industry conference last month, has come under fire in recent weeks from critics who charge that he is too cozy with the companies he regulates.

Michael Soller, a spokesman for Lara, said the bill would merely provide the state with more options in dealing with costly disasters.

“Californians really want to see people collaborating to solve the problems of extreme wildfire,” Soller said.

But Consumer Watchdog, an advocacy group whose founder wrote the 1988 ballot initiative that created the elected position of insurance commissioner, called the disaster insurance bill a betrayal of the office.

“This is a very elaborate boondoggle to give the insurance companies a blank check from the state,” said the group’s president, Jamie Court.

Lara’s relationship with insurers has been closely scrutinized since the San Diego Union-Tribune reported last month that soon after becoming insurance commissioner in January, he began accepting contributions from out-of-state donors with industry ties for his 2022 re-election campaign. Most previous California insurance commissioners have refused industry donations to avoid the appearance of a conflict of interest.

Lara pledged during his campaign last year to reject money from insurers. After the story was published, he promised to return more than $54,000 in re-election contributions. Most of the money came from people connected to Applied Underwriters, a workers’ compensation provider that is being sold in a deal that requires the insurance commissioner’s approval.

The Union-Tribune subsequently found that Lara had intervened in at least four cases challenging the cost of Applied Underwriters policies, including twice when he overruled decisions against the company by his department’s administrative law judges.

Lara later told KQED-FM that he had met with the CEO of Applied Underwriters, who asked him to review the cases, but that “nothing in that meeting that came out changed the course of my decision.” He said he had intervened to protect injured workers “from losing their coverage and from businesses being on the hook for major financial losses.”

Lara introduced the disaster insurance bill in February alongside Sen. Bill Dodd, a Napa Democrat whose district was hit hard by the 2017 Wine Country fires. State Treasurer Fiona Ma is also a sponsor. Under the bill, the governor could buy policies from insurers, after consulting with the insurance commissioner and treasurer to determine the appropriate product.

Lara, Ma and Dodd argued that a new financial model — relying on insurance to pay for disaster response, rather than dipping into state reserves — would free up resources to do more wildfire prevention work. California spent nearly twice what it budgeted last year to combat blazes.

“It is flat-out wrong to assume the governor, insurance commissioner and state treasurer are not capable of designing and researching various insurance options without being somehow scammed by the insurance industry,” Mark DeSio, a spokesman for Ma, said in a statement.

The bill breezed through the Senate without a single “no” vote and now awaits action in an Assembly fiscal committee. Half a dozen insurance industry trade groups support the measure and, until recently, it had no formal opposition.

But in an analysis issued last month, the state Department of Finance opposed SB290 because the governor already has “broad authority” to tap into any available state funds and take other steps to pay for emergency response.

“Finance expects insurers will be wary of the wildfire risk in California, and the premiums would likely be high and financially unsustainable for the state” if the bill passes, the Department of Finance said.

Soller, the insurance commissioner’s spokesman, said the bill does not require the governor to buy insurance if it is not financially practical.

“If that policy becomes too expensive, California can walk away,” he said.

During a speech last month in Los Angeles, at a conference organized by the American Property Casualty Insurance Association, Lara suggested that the bill had been developed alongside the insurance industry.

“We’ve made several meetings and (are) really working collaboratively in a place that’s open and transparent to figure out how we find new ways to promote prevention and to also allow us to be a little bit more innovative when it comes to the department,” Lara said.

Consumer Watchdog
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