San Francisco Chronicle – Californians face an insurance crisis. Can they trust the man in charge of fixing it?

State Insurance Commissioner Ricardo Lara is a political ladder-climber with a long track record of ethical scandals who clearly wants a different job


One of the favorite party tricks by California officials for making politically difficult decisions is to unveil an announcement that makes it seem like they’re solving the problem — but actually kicks it down the road.

That’s what Insurance Commissioner Ricardo Lara did late last month when he announced a package of proposals to shore up California’s faltering home insurance market. Lara, who did so only after state lawmakers failed to put together their own legislation and after Gov. Gavin Newsom directed him to do it, heralded his package as “the largest insurance reform since state voters’ passage of Proposition 103 nearly 35 years ago.” 

But industry players told me the reforms likely won’t be fully implemented until 2026 — which happens to be the year Lara terms out of office. 

That timing may be convenient for Lara, a political ladder-climber with a long track record of ethical scandals who, based on his deer-in-headlights press conference to announce the reforms, would clearly rather have any other job than this one. 

But it’s anything but convenient for the rest of California. Amid mounting financial pressures exacerbated by skyrocketing inflation, supply-chain backlogs, enormous wildfires fueled by climate change and poor forest management, and continued development in high-fire-risk areas, seven of the state’s top 12 insurers have paused or restricted new business since 2022

This not only makes it harder to build new homes in a state that desperately needs them, but it also threatens to push people out of their existing homes in a state that already has the nation’s largest homeless population

A problem of this magnitude needs to be addressed now — not in three years. Yet Lara’s scandal-ridden past has muddied the already complex waters of insurance policy. Can Californians trust reforms proposed by a man who, among other lapses, repeatedly reneged on his promises to forgo insurance industry campaign contributions?

The stakes are high. With insurance giants such as State Farm, Allstate and Farmers limiting new business in California, more residents — particularly those in areas of higher fire risk — are being forced onto the state-established Fair Access to Insurance Requirements Plan.

This high-cost, low-coverage “temporary safety net” has become many residents’ only insurance option. In August, the FAIR Plan added 25,000 policyholders. Compare that to the monthly cap of 7,000 new home policies Farmers recently established in California. 

If this trend continues, it could bankrupt insurance companies — and potentially leave taxpayers holding the bill. Private insurers are responsible for claims the FAIR Plan can’t pay — and as of August, it had an exposure of $264 billion, according to a report from the nonpartisan Rand Corp., shared with California lawmakers, that I obtained. That exposure likely will grow due to Lara’s recent expansions of the plan’s agricultural and commercial coverage.

“If we go into this fire season with unlimited (FAIR Plan) liability, our official public policy for the state of California will be to cross our fingers and hope there’s not a fire near our homes,” Rex Frazier, president of the Personal Insurance Federation of California, told me. 

Lara’s framework outlines key steps for moving people off the FAIR Plan and back onto private coverage, which is critical to stabilizing the market. 

Insurers would get two tools they’ve long sought in California: The ability to use forward-looking climate catastrophe models and the ability to pass along some of their costs for reinsurance, which is essentially insurance for insurance companies. 

In return, insurers would be required to write policies in “distressed areas” equivalent to 85% of their share of the California market. 

Will Lara’s blueprint work?

“The devil is in the details,” Dave Jones, a former California insurance commissioner who now directs the Climate Risk Initiative at UC Berkeley’s Center for Law, Energy and the Environment, told me. 

Unfortunately, details are scarce. 

Lara’s plan doesn’t define what a “distressed area” is. The insurance department isn’t set to implement rules governing forward-looking climate catastrophe models until December 2024. And it’s unclear how the department plans to calculate which reinsurance costs are California-related and can thus be passed along to consumers. 

This lack of clarity, plus Lara’s cozy past with the insurance industry, has given consumer advocacy groups grounds to accuse him of capitulating to insurers’ demands and to issue warnings about skyrocketing premiums. 

Jamie Court, president of Consumer Watchdog, the nonprofit behind Prop. 103, told me insurers are “using the climate crisis to get an agenda of deregulation,” and Lara isn’t “willing to play chicken with the industry.” 

Given Lara’s history, Court’s skepticism is warranted. 

But insurers in all the other states use climate catastrophe models and reinsurance costs to determine their premiums — as does the California Earthquake Authority, of which Lara is a governing board member. Lara’s plan, bare-bones as it may be, is reasonable. 

Which raises the question: Does Lara really need more than a year to develop regulations for these models — and another year to review and approve insurance companies’ use of them? 

As Dan Dunmoyer, president and CEO of the California Building Industry Association, put it, “It’s OK to plagiarize good public policy.” 

“We will move at the speed of good policy to make long-term change,” Deputy Insurance Commissioner Michael Soller told me in an email.

Lara has two choices: Slow-walk his proposed reforms, which will push more people onto the FAIR plan and increase its chances of going bankrupt — or expedite them, which will cause consumer groups to cry foul and accuse him of bailing out the insurance industry.

Either way, consumers are going to have to pay more. But it’s clear which option is costlier in the long run. 

The choice Lara makes will say a lot about the future he’s most concerned with: his own or Californians’.

Reach Emily Hoeven: emily.h  [email protected] m ; Twitter: @emily_hoeven

Latest Articles

In The News

Latest Report

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More articles