By Diane Oestreich, MOUNTAIN NEWS
Californians frustrated with rising fire insurance rates and cancellation of their policies had a chance to provide input during an online public workshop on June 26. Lucy Wang, Deputy Director of the California Department of Insurance, facilitated the two-hour event titled “Workshop Regarding Catastrophe Modeling and Ratemaking.” Insurance Commissioner Ricardo Lara publicized the event as a place for California homeowners to share their concerns about having their policies cancelled and being forced to enroll with the California FAIR Plan. Written comments were invited during the meeting and up until 5 PM on the day after the workshop.
Participants were assured that the agency is using “all enforcement tools at its disposal to get (insurance) companies to follow through.” “Catastrophe modeling” may be an apt description for what is going on in the insurance business, but it did not inspire confidence in most of those who shared their experiences with the insurance industry in California. The approximately 30 people who spoke during the meeting included insurance brokers, talk radio hosts, elected officials, firefighting personnel, consumer group representatives, and California homeowners. They called in, were put in a queue and then given a chance to express their concerns. It was an opportunity for input but without any attempt to offer further solutions from the California Department of Insurance. Fifteen-year-old maps being used currently to assign risk were cited by numerous callers as being outdated and inaccurate.
Reducing risk exposure by home hardening is a logical strategy being promoted by CAL FIRE for fire prone areas. A homeowner said her insurance had gone up 400% but her ZIP Code was not included among those listed as high-risk areas. Another participant said ZIP Codes are postal service divisions and don’t accurately divide California’s geography by regional topography. A homeowner from Santa Cruz said his community had united to form a Firewise Community to request rate reduction from California FAIR Plan, but he had received no response from the insurance company. He also said only 32 homes of the 900 destroyed by the 2020 Bonnie Doon Fire had been rebuilt, noting that the cost of rebuilding is astronomical, and people have left the area because they can’t afford to rebuild.
David Shaffer, a licensed California insurance agent since 1979, said this is the worst insurance market ever for homeowners. Alameda and Contra Costa Counties have not been affected by wildfires, but their insurance non-renewals are skyrocketing, and only a very limited number of new policies are issued per month in California. The California FAIR Plan is already overexposed, he added.
Denise Gluhah of Los Altos Hills Fire Department in Santa Clara County asked whether there could be a moratorium on non-renewals statewide or in distressed areas to slow the “brisk rate of non renewals” as part of the proposal. How can residents become candidates for meeting standards that will bring a reduction in their fire insurance, she added. A consistent standard is needed.
Michael DeLong of the Consumer Federation of California (and the United States) noted that California is not the only state in an insurance crisis. He reported that 17 states have similar problems and unprofitable years for insurance, including Colorado, Georgia, Illinois, Minnesota, Nebraska, Florida, and Texas. The highest levels of uninsured homes were found to be in Detroit, Houston, and Miami, states which use catastrophe models and pass through re-insurance costs. “Create a public California wildfire model,” he urged, and “match rates to risk.”
Bryan Rehor of ZestyAI briefly explained the vision from the ZestyAI website “to predict and mitigate the impact of natural disasters on society by harnessing cutting-edge technology such as Artificial Intelligence.” He promoted their flagship product, Z-FIRE. They focus on the using technology to design models that include property specific risk models that analyze vegetation, topography, and building materials in real time and recognize risk-management mitigation efforts on the part of homeowners. “The generalization inherent in traditional models can result in disproportionate increases for all policyholders, including those who have invested in mitigation efforts,” he said. He added that the review process must be “streamlined and expedited to restore availability to the California market.” Their two recommendations for the California Department of Insurance (CDI) are:
1. Given the importance of using risk modeling and in conjunction with stochastic models, CDI must begin reviewing models immediately, so carriers are not faced with delays in the rate-filing process.
2. CDI should streamline the model review process and allow immediate implementation of new underwriting guidelines, without prior approval, to increase insurance availability and address the insurance crisis in distressed areas.
Dan Hirning of Firezat offered a suggestion: reusable Aluminized Structure Wrap for wildfire home defense. The product is also used for historic landmark preservation services in the US and Canada. It requires no water, electricity, or maintenance. It is also reusable. The offer of incentives to homeowners for use of the product could provide protection from firebrands which can travel up to two miles and spread fires
Carmen Balber, Executive Director of Consumer Watchdog, advocated giving consumer groups access to current models being used to set rates. She focused on five loopholes in current efforts at insurance reform:
The proposal
1. Imposes price hikes from unverifiable catastrophe models on Day 1, but insurance companies’ supposed commitment to sell in fire areas again won’t start for two years
2. Insurance companies will not have to offer comprehensive coverage. They may meet commitments with a bare-bones policy equivalent to what is offered today by the FAIR Plan. This leaves insurers no better off than they are now.
3. Does not require insurance companies to expand sales in fire areas to 85% of what they sell elsewhere. All companies, not just small companies as the commissioner previously said, could opt instead to only increase their market share in high fire zones by 5%. Insurers could also make up any other “alternative commitment” they choose. Insurers could say they are making a “reasonable effort” to meet goals—but go on indefinitely without doing so.
4. Contains no hard deadline for implementation. As long as an insurer says it is making a “reasonable effort” toward meeting a goal, they may defer actually meeting it indefinitely.
5. There are no penalties if a company fails. After two years, the commissioner can acknowledge “progress” and no penalties will be imposed. The proposed regulation doesn’t meet the promise.
Ms. Balber basically said there are no teeth in Commissioner Lara’s proposed reforms and expressed Consumer Watchdog’s concern that the proposed changes will be ineffective.
Even proponents of the proposed legislation had some reservations, such as how to achieve 85% of the market share in two years.
Stephen Young, General Council for the Independent Insurance Agents and Brokers of California, said agents and brokers are “very skilled at assessing risk and pricing it.” To do so, “they need two things: adequate rates and timely rate decisions.” He added, “they have not gotten either one of those things in California for a very long time.” He thanked Commissioner Lara for “recognizing that the business of insuring property has been changed inexorably and permanently by these catastrophic wildfire exposures.” They support Commissioner Lara’s belief that insurers should resume writing and renewing policies, taking them out of the FAIR Plan. They also believe the 85% benchmark is too high however and affirm that one size does not fit all in the marketplace.
Napa County Supervisor Anne Cottrell said the Catastrophe Model makes sense. She added that consumers need access to their data from insurers. Models should include community-wide mitigation. Insurers should consult local fire authorities for current risk assessment of individual homes.
Anthony Manzo, the final speaker, made a plea for consideration of renters and condominium owners, who are among the most vulnerable residents of communities.
The good news: Commissioner Lara wants to return California FAIR Plan clients to the regular insurance market.
The bad news: Insurers don’t seem to want to play ball. There are no teeth in proposed policies to compel them, and they are reluctant to write more policies in California.
