Insurance Business – Consumer group highlights “loopholes” in California’s insurance reforms


A consumer advocacy group in California has claimed that a rule introduced by insurance commissioner Ricardo Lara lacks substantial consumer benefits and is marred by “loopholes.”

The rule, which is part of a larger reform package set to be implemented in December 2024, sees insurers agree to return to fire risk zones up to a certain threshold equivalent to 85% of their statewide market share.

In exchange, they would be allowed to utilize catastrophe models and include reinsurance costs in their pricing.

Addressing the state’s governor and legislative leaders, Consumer Watchdog criticized Lara’s move to deregulate insurance pricing while citing documents that allegedly show how it will lead to higher costs for consumers.

“In exchange for deregulating insurance in California, consumers would get no more than the bare bones coverage they are guaranteed today,” Consumer Watchdog’s Carmen Balber and Harvey Rosenfield wrote in a letter to Governor Gavin Newsom, Senate pro tem Toni Atkins, and Speaker Robert Rivas.

According to the letter, documents containing details of Lara’s plan show that he could easily waive the “85% commitment” for insurers that claim they cannot meet it.

It also includes “provisions to facilitate unjustified rate hikes [that] mean consumers will be unable to afford the policies insurers are willing to sell,” the letter added.

For 35 years, California’s Proposition 103 has required insurers to obtain prior approval from the California Department of Insurance before being able to adjust their rates.

Rosenfield, who authored the measure and founded Consumer Watchdog, said this has led to huge savings for consumers.

But industry groups have argued that Proposition 103 has created a regulatory environment that makes it difficult for companies to quickly respond to cost pressures like inflation and wildfire risks.

Several insurance companies have cited these increasing pressures when making the decision to limit their exposure in California, with some withdrawing from the state altogether.

Earlier this year, the American Property Casualty Insurance Association (APCIA) penned a statement calling for insurance reforms in California and said Proposition 103 needs to be “modernized.”

“California’s regulatory framework is 35 years old and is ill-equipped to handle the increasing challenges wrought by climate change and is resulting in the insurance market upheaval California faces today,” said APCIA president and CEO David A. Sampson.

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