San Francisco Chronicle – Is There a ‘War’ Between California and Home Insurers? State Insurance Commissioner Responds


Since March, Kevon Cottrell has had a hard time finding coverage for his home in South Lake Tahoe after Connect Insurance canceled his plan, citing fire hazards. On the social network Nextdoor, he found numerous posts by neighbors experiencing similar difficulties finding coverage for their homes.

After striking out for weeks with multiple companies, Cottrell finally found fire coverage through the state-offered Fair Access to Insurance Requirements Plan — a temporary insurer of last resort that’s becoming a permanent option for many Californians — with Bamboo Insurance covering everything else. The new arrangement will double his homeowners insurance costs, Cottrell said.

Before settling for the FAIR Plan, Cottrell tried one last-ditch call with Connect, hoping to persuade it to reinstate his coverage. 

“That’s when this fellow got into a discussion about this war between California and the insurers,” Cottrell said of his conversation with the Connect agent. Connect did not respond to multiple requests for comment. 

Across California, insurance companies are slowing business — sometimes by not writing new homeowner and commercial policies, as is the case for State Farm and AllstateAuto insurance too has been harder to get, according to California agents. 

All of this has put Ricardo Lara, California’s insurance commissioner since 2019, under increased scrutiny. 

In an interview with The Chronicle, Lara said he does not think insurers are scaling back business to put political pressure on his office. Rather, he pointed to the challenges of climate change, inflation and increased construction costs as well as continued supply chain shortages.

“We’ve never seen the confluence of all these different issues hit us all at once,” Lara said.

According to Lara, one of the major problems is that the vast majority of the time, insurers request increases of only 6.9% in their rate filings — far below the double- or even triple-digit filings the companies’ calculations say they need. Per California law, any proposed rate increase of 7% or more gives the public the right to request a mandatory public hearing. 

Once insurers get a 6.9% increase approved, they often get right back in line with another request, creating a backlog of requests for the commissioner to review. There is no limit on how often insurers can apply for rate changes, and the average review process for a filing is six months — meaning insurers can, and occasionally do, get two 6.9% increases a year, according to Department of Insurance spokesperson Michael Soller. 

“We’ll never be able to close the protection gap” if insurers keep requesting increases of 6.9%, Lara said. “And so we need to continue to have those honest conversations with the industry about what the risk actually is.”

As for insurers, agents and brokers and consumer advocates who say the market isn’t working, Lara replied that “if the market wasn’t working, we wouldn’t be the No. 1 insurance market in the country.” 

As the most populous state in the country, California is the top market in many sectors.

The Department of Insurance hosted a briefing for agents and brokers last week to allay rising concerns from middlemen of the market who depend on its stability for their livelihood. But many agents, consumers and consumer advocates remain concerned about the dwindling options and believe the government should do more to help.

Some factors, such as inflation, may be an issue across the country. Earlier this month, Nationwide said it would pause habitational and lessor insurance for small commercial properties at the end of June across the country, as well as require stricter pre-quote and underwriting processes in numerous states, per a memo to agents reviewed by The Chronicle. Asked to confirm the pause, Nationwide referred The Chronicle to a statement earlier this month, which cited “strong headwinds brought on by the economic environment, catastrophic weather events and the impacts of inflation” impacting the entire insurance industry.

But in California, the shrinkage has been aggressive and increasingly visible to consumers as they shop around and find a shortage of options. 

“Never have I seen a market like this where companies are clearly engaged in suppressing business any way they can,” said Mike D’Arelli, executive director of American Agents Alliance, a national association of insurance agents, about the current situation in California. 

Home insurance premiums in California, despite the state’s risk of wildfire and other disasters, are slightly less than the national average and ranked 24th in the country in 2020, CalMatters reported. On auto insurance, California ranked 19th in 2019, according to data from the National Association of Insurance Commissioners. 

In a state where most everything else is notoriously expensive, one reason for California’s moderate insurance premiums is its regulations, which put the burden of proof on insurers to justify why they need to increase rates before they are allowed to do so. Those regulations are under fire now — from both consumer advocates who want the state to come down harder, and insurers who want it to be easier to get higher rates.

Consumer Watchdog founder Harvey Rosenfield, author of Proposition 103, the law widely disparaged by the industry that requires insurers to get rate increases reviewed and approved by the commissioner, said the insurers are engaging in a “boycott” and “economic blackmail.”

Rosenfield said the commissioner should order insurers back to the marketplace on an emergency basis and review whether their rates should be reduced because of their decision to decrease sales to new customers. Lara and the Department of Insurance said they lack the legal authority to do this. 

“It’s simply incorrect to say (insurers) can’t get the rates they need. What it is, is that they can’t justify the rates they want,” Rosenfield said.

Rex Frazier, president of Personal Insurance Federation of California, an advocacy association of personal injury and casualty insurers in the state, said that framing the current situation as a showdown between insurers and California is a “cheap clickbait tactic.”

Instead, he said the market right now is the direct result of rates being too low. 

“At some point, the rate approval process has to catch up with the extraordinary demand that it’s presently under. I feel sympathy for the Department of Insurance, because they now have every company coming to them with gigantic rate increase requests,” Frazier said. “If business as usual continues, there’s going to be market availability issues.”

Insurers have argued that California’s policies don’t allow them to adequately price the risk they’re taking on. For one, the state hasn’t allowed insurers to charge for the costs of reinsurance, essentially insurance for insurance companies that allow them to offload some of their liability operating in the disaster-prone state. 

Additionally, insurers must base prices on the past 20 years of payouts for wildfires, rather than use forward-looking models to assess fire risks. Minds, though, may be changing: Last week, Sacramento lawmakers held hearings on whether insurers should be able to use future-oriented risk modeling — which consumer advocates warn could be opaque and unjustifiably increase premiums — and the commissioner is holding a workshop on the topic on July 13. 

Meanwhile, in Sunnyvale, Nicole Salmasi is scrambling to find insurance before August, when a policy that’s covered her gas station and car wash business Sunnyvale Car Spa for the last 13 years will be non-renewed. Salmasi found out her policy would be canceled in late May, after she reported thefts of gasoline from the station last December. 

Salmasi was expecting her premium to go up but was taken aback by the cancellation. She thought it would be an easy process to find a new carrier, but after contacting numerous companies and brokers, was told that it would be “almost impossible” to find new coverage because insurance companies are pulling back from California. 

If Salmasi does find coverage, she expects it to be three times more expensive than her current policy. If she does not, come August, the car wash and gas station will not be in compliance with its mortgage and will have to close its doors, she said.

“It takes a toll on your mentality, takes a toll on your business. It comes to a point that you have to question if this is worth my sanity,” Salmasi said about running her business while enduring a pandemic, crime, winter storms and now the struggle of finding new coverage. 

“The fact that the insurance companies can do this and there are no consequences is extremely upsetting. The fact that the state insurance department is not doing anything to prevent this from happening is even more upsetting,” Salmasi continued. 

Reach Claire Hao: [email protected]; Twitter: @clairehao_

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