Insurance Commissioner Ricardo Lara needs to advocate
By Jamie Court, SAN DIEGO UNION TRIBUNE OPED
Court is president of the Los Angeles-based nonprofit Consumer Watchdog. He lives in Los Angeles.
Insurance companies are refusing to sell new homeowner policies or renew many customers, driving more San Diego homeowners into the high-cost, low-benefit FAIR Plan, a pool of insurers providing last-resort coverage.
Insurance companies blame wildfire risk and the inability to get big enough rate hikes for their decision to leave many San Diegans high and dry.
Yet San Diego is a model community for mitigating wildfire risks, deploying state-of-the-art weather monitoring, defensive space programs and buried powerlines.
And insurance companies have been approved for big double digit rate increases recently from the California Department Insurance. State Farm received an average 20 percent rate increase and Farmers a 37 percent rate hike, but both companies are still withdrawing.
California insurers’ profits have outpaced the national average over the last 20 years and been far greater in California than their national profit, by every measure, in each of the last four years.
What’s going on?
First, what has some insurance companies spooked is greater exposure through the Fair Access to Insurance Requirements, or FAIR Plan, which increasingly covers expensive homes in wildfire-prone areas. Insurers are on the hook for FAIR Plan claims, and their exposure increases with market participation, so they limit their participation.
Only freeing people from the FAIR Plan will solve this. The most practical way to do that is to require insurers to cover people who harden their homes against fire. We have mandatory health and auto insurance, so why shouldn’t we have it for homes that meet standards?
Hardening is expensive enough that most homeowners are unlikely to do it without guaranteed coverage. Mandating insurance is therefore the best way to mitigate wildfire risks.
Second, the current crisis was caused not so much by wildfires as by investment losses in 2022 and rising construction costs. Insurers responded by tightening underwriting and raising rates.
Insurance companies got their hikes and Wall Street recovered in 2023, but the companies, knowing they had a friend in the insurance commissioner’s office, still refused to write new business until they got more. Unfortunately, Insurance Commissioner Ricardo Lara is ready to give them whatever they want.
What the insurance companies want is the ability to raise premiums based on factors previously disallowed — black box climate models and reinsurance costs, which are unregulated and very expensive. Florida tried a similar approach, and its rates are now double California’s. Florida’s insurer of last resort covers 19 percent of its homeowners, almost five times the share of the FAIR plan in California.
In return for the deal Lara cut with insurance companies to raise rates on everyone, they were supposed to start selling again to the homeowners they’ve abandoned. When the details materialized recently, however, that promise evaporated.
Insurers will only have to increase sales to homeowners in “distressed areas” by 5 percent. Nothing requires them to charge prices consumers can afford. The requirement to cover these areas could also be waived if an insurer shows it’s “taking reasonable steps to fulfill its insurer commitment.” And the plan gives companies two years to comply but lets them start charging all policyholders higher rates immediately.
Worse, the policy that insurance companies can sell to meet their commitment can be the same bare-bones, high-priced policy that policyholders already have access to in the FAIR plan.
Lara, meanwhile, has declared war on the regulatory process meant to protect consumers from higher rates. He and Gov. Gavin Newsom have proposed a budget trailer bill meant to speed rate hikes that would limit independent public oversight of rates. The bill would cut out intervenors such as Consumer Watchdog, which can challenge unnecessary increases and has saved consumers more than $6 billion over 22 years.
In an editorial published in September 2022, The San Diego Union-Tribune Editorial Board wrote that “Ricardo Lara can’t be trusted as California insurance commissioner” after he took action on behalf on his insurance industry donors. That’s why public participation is an important check on the industry and commissioners who sing their tune. When Lara decided cases without a consumer intervenor, companies got 97 percent of the rates they wanted, as opposed to 62 percent when our consumer group was involved.
The Legislature must realize that throwing more money at insurance companies won’t solve the problem and enact a mandate for insurers to cover everyone who does the right thing and fireproofs their home.