San Francisco Examiner – Could California insurance market update cost homeowners?


California Gov. Gavin Newsom announced massive changes to the state’s home insurance market on Thursday, just weeks after a consumer advocacy group accused providers of conspiring to drive up rates.

The move comes after several of the state’s major providers, including State Farm, Allstate, Farmers Insurance, and USAA, stopped accepting new applications from homeowners, citing the increasing costs and risks associated with climate impacts such as wildfires. 

In response, the advocacy group Consumer Watchdog accused the companies earlier this month of using their departures from the state as leverage for a government bailout. 

“It is critical that California’s insurance market works to protect homes and businesses in every corner of our state,” Newsom said in a statement Thursday. “A balanced approach that will help maintain fair prices and protections for Californians is essential.” 

Shortly after Newsom’s order was announced, California Insurance Commissioner Ricardo Lara followed with a plan outlining ways to strengthen and stabilize the insurance market, including transitioning homeowners and businesses from the state-run insurance alternative to the commercial market to drive capital back into the private sector. 

But the plan came with a catch: Private insurance providers would have to cover the entire state, with 85% of the market share in “high wildfire risk communities.” 

“For example, if a company writes 20 out of 100 homes statewide, it must write 17 out of 100 homes in a distressed area,” Lara said in a statement on Thursday. 

Insurance companies commended the moves from Newsom and Lara. 

“It is painfully clear the current system is not working properly,” said the Personal Insurance Federation of California in a statement. The federation is a statewide trade association representing several major providers, including State Farm and Allstate. 

“Today’s actions are an important first step in stabilizing California’s insurance market,” the statement added. 

But consumer advocates warned that the Newsom administration’s moves would likely increase the costs of insurance rates for the state’s homeowners. 

“Insurance companies are using their economic power to create shortages for the purpose of pressuring elected officials to change the rules that have kept insurance premiums in California stable, affordable and available for decades,” said Harvey Rosenfield, the author of Proposition 103, in a statement on Thursday. 

Prop. 103 was passed in 1988 and requires insurance providers to get state approval when setting property and casualty insurance rates. 

Newsom’s order urged Lara to expedite the approval of rate increases and tailor rates to account for all factors, which Consumer Watchdog said providers can set rates based on things such as wildfire risk. 

“Instead of enforcing those protections when they are needed most, the Insurance Commissioner has capitulated to the insurance industry demands, which will dramatically increase homeowner and renter insurance bills by hundreds or even thousands of dollars,” Rosenfield said. 

Consumer Watchdog cited Florida, which has also been battered by the increasing impacts of climate change, such as hurricanes, as an example of what California homeowners might come to expect under this new process. 

“The use of catastrophic modeling and adding of reinsurance costs to premiums has pushed Florida premiums up two to three times higher than California’s,” said Jamie Court, the president of Consumer Watchdog, in Thursday’s statement. “California is in danger of becoming Florida with these changes that mimic the failed strategies in Florida.”

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