By Don Jergler, INSURANCE JOURNAL
August 11, 2020
The stage has been set for a major battle over a California bill due to be heard in the next few weeks in a key committee that opponents say is a direct attack on insurance consumer protections and proponents say is the best way to make insurance more available in an increasingly wildfire-prone state.
Assembly Bill 2167, authored by Assemblyman Tom Daly, D-Anaheim, would establish the Insurance Market Action Plan program, or IMAP program, under which residential property insurance policies in a county may qualify for IMAP protection.
The bill has been moving along relatively swiftly – considering much of Legislature has been hamstrung by COVID-19 precautions – since early June when backers said they believe it has the right timing and plenty of momentum to go all the way.
AB 2167 has been strongly opposed as an attack on insurance consumer protection law Proposition 103 by California Insurance Commissioner Ricardo Lara, who has called it an “insurance industry wish list, with nothing to help consumers,” and Consumer Watchdog, whose founder, Harvey Rosenfeld, authored Prop. 103.
It’s supported by the insurance industry, including the Personal Insurance Federation and the American Property Casualty Insurance Association. It’s also being backed by the California Association of Counties (CSAC), CalFIRE’s union and Fire Safe Councils of California.
Another watchdog group, the Consumer Federation of America, estimates the bill will lead to rate increases of 40%. While the insurer groups say the bill provides homeowners in wildfire zones access to more choice and competition among insurers based on price and coverage while avoiding costly and more limited FAIR Plan coverage.
The bill was set to be heard on Thursday in the Senate Appropriations Committee. The hearing on the bill was postponed. The bill is most likely headed to Senate Appropriations “suspense file,” where the committee’s actions on all the bills with a fiscal cost are announced at the same time. Currently the deadline for that is Aug. 21.
The chair of the Appropriations Committee is state Sen. Anthony Portantino, D- La Cañada Flintridge, who voted in favor of the bill in the Senate Insurance Committee when it was last taken up. However, during that hearing he said that his vote should not be taken as support for the bill.
Portantino voiced reservations about strong opposition from Lara, the possibility of a rate increase and other issues with the bill.
“I’m going to support the bill today with those strong reservations,” Portantino said during that hearing earlier this month. “We’re going to be looking at those issues with a very discerning eye.”
Carmen Balber, with Consumer Watchdog, offered her bottom-line on the bill: It will lead to higher rates for consumers.
“Even the insurance industry will acknowledge that this bill is intended to raise rates,” Balber said.
She added that the bill would “dump a lot of Prop 103 protections,” and it would “rewrite insurance regulations in California.”
“There’s nothing in the bill that will make sure that people who are actually shut out of homeowners insurance now will have expanded access,” she said. “This bill does not give a single homeowner access to coverage that they don’t have today. It’s a false promise.”
Mark Sektnan, vice president for state affairs of the APCIA, noted that Gov. Gavin Newsom has asked the industry to help come up with a solution for lack of insurance in wildfire-prone areas, “and this is a solution.”
“It doesn’t take away any of the authority of the insurance commissioner,” he said.
Sektnan said the bill “still works within the Prop 103 process,” and noted there have been amendments to the bill to strengthen the commissioner’s role in the approval process.
Lara said during the Senate Insurance Committee hearing last week that AB 2167 outlined how he believes the bill not benefit consumers in few ways, including even higher premiums, and the inclusion of unregulated reinsurance costs that are not regulated by the Department of Insurance and do not adhere to consumer protections under Prop 103.
“I fundamentally disagree with this bill’s fundamental premise that the current ratemaking process of the Department is not working,” Lara said at that meeting. “Today insurers are lining up at the Department’s door in an unprecedented number, and if the insurance company can clearly demonstrate that the filed rate under Prop. 103 is not excessive, not inadequate and not unfairly discriminatory the department’s rate regulation staff approves the rate. The department takes this responsibility very seriously to ensure the solvency of the insurance market, especially after our fires. I believe there is an existing process today for insurance companies to request adequate rates.”
AB 2167 would require an IMAP filing submitted to the California Department of Insurance by an insurer to include elements such as a request for adequate rates, a plan for maintaining solvency of the insurer and mitigation requirements.
It would require an insurer that submits an IMAP filing to receive an expedited review of its rate filing, if the insurer uses an actuarial assumption for trend and loss development that is at the midpoint or less of rate impacts, or files for a rate increase based solely on increased reinsurance costs, and does not change any other aspect of its rate filing from its previous department approved rate.
The bill calls for ensuring insurance rates are adequate to avoid insurer insolvencies and to permit insurers to operate in the state’s highest risk areas, reducing the number of residents that are required to rely upon the California FAIR Plan, incentivizing insurers to seek cost-based rates in exchange for assurances that they will serve high-risk communities at levels similar to their statewide presence and developing systems of accountability for individual and community-based loss mitigation efforts.
The bill’s language makes the argument that climate change has created a “new reality” in California, where the average length of fire seasons are 80 days longer than in the 1970s, and that major insurers are pulling back from writing new policies or renewing policies in the wildland-urban interface fire areas.
Additionally, the bill notes, premiums are increasing in the WUI, while most insurers do not take into consideration wildfire mitigation because no single insurer has loss experience in the WUI to validate the rates and premiums charged for each wildfire risk model score.