California insurers want ‘deregulation’, not modernization – Consumer Watchdog founder

Prop 103 author takes aim as insurers exit beleaguered state

California insurers want ‘deregulation’, not modernization – Consumer Watchdog founder


By Jen Frost

Consumer Watchdog founder Harvey Rosenfield has issued a scathing response to insurance company calls for insurance regulatory reform in California, labelling modernization calls a cynical bid for “deregulation”.

Insurer association the American Property & Casualty Insurance Association (APCIA) has set out that a confluence of factors means the property insurance market in California has faced “implosion”. The group has called for reform to “outdated” regulation. Prop 103 author Rosenfield, though, disagreed that most mooted changes were necessary.

“Prop 103 mandates that [insurers] get not only all the revenue that they need to cover their projections of losses, but they're also entitled to a fair profit and reasonable expenses,” Rosenfield said. “That's not good enough for them.”

Insurer calls for reform come as Allstate, State Farm, Farmers, and AIG have reportedly plugged the plug on some or all new homeowners business in California.

Nationwide Insurance has also recently announced corrective action on its personal and commercial portfolios, though it declined to share specific actions or states affected when approached by Insurance Business in June.

California insurance regulation – putting the “brakes” on

Prop 103 sets out that insurance companies require “prior approval” from the insurance commissioner to set property and casualty (P&C) insurance rates, and Rosenfield is the architect of the legislation.

He insisted, though, that his stance on reform is not “personal”.

“I have spent the last 35 years defending Prop 103 at Consumer Watchdog, but I do that for the same reason that I defend the requirement that automobiles come with brakes, because sometimes you need to be able to put on the brakes to avoid the disaster,” Rosenfield said. “And their [insurers’] idea of modernization is to get rid of to get rid of the brakes – they want to just crash through all the barriers … that the voters set up.”

Rosenfield called on California Insurance Commissioner Ricardo Lara to “protect the marketplace”.

What insurance changes is APCIA calling for in California?

The insurance association APCIA has advocated for five changes to current regulation. The insurer group’s five recommendations for change were as follows:

  1. Allowing the use of forward-looking catastrophe modeling in rate filings.
  2. Allowing the use of reinsurance in ratemaking.
  3. Reforming the rate filing process more broadly, to complete reviews within statutory timeframes.
  4. Reforming the California FAIR Plan assessment process to reduce exposure to the shrinking number of private insurers remaining in the marketplace; and
  5. Advocating for expanded wildfire mitigation to reduce the risk and make coverage more available in high-risk areas.

“When I read the bullet points [see above], modernization is deregulation,” Rosenfield said.

The Consumer Watchdog founder further argued that it is within the commissioner’s power to grant rate increases, and that Lara “has the power” to pass through reinsurance costs, though this could see rates “skyrocket” by 40% to 50%.

Rosenfield and insurance advocates may frequently butt heads in the Golden State, but there was one point he did agree was important: mitigation.

“We pushed for mitigation, the insurance companies resisted it,” Rosenfield said.

Under an October 2022 law, all insurers in the state are now required to offer discounts for policyholders’ wildfire mitigation efforts. With 180 days given to implement changes at the time, CoreLogic senior director of insurance solutions Tom Larsen warned this posed a “big burden” for insurers and could create a backlog while filings were assessed and approved.

As for next steps, Rosenfield told Insurance Business, if insurers want change, then “let them put something on the ballot, let the voters decide”.

Why insurers say the California insurance system has become unsustainable

APCIA shared its call for reform in response to Farmers Insurance reportedly becoming the latest carrier to limit its California exposure.

“The California Department of Insurance has recently recognized the need for rates to start catching up with actual and future risk, but the problems with the underlying, outdated regulatory scheme create larger challenges,” APCIA president and CEO David Sampson said in the Friday statement.

Wildfires are said by insurers to be one major culprit said to be driving the need for rate increases, following a series of losses in 2017, 2018, and 2020. The most economically damaging of these – the 2018 Camp Fire – drove insured losses of at least $10 billion, according to Aon data.

The 2018 Fourth California Wildfire Assessment found that, in the event of a continued rise in greenhouse gas emissions, the average area burned statewide would increase by 77% by the end of this century.

Drought, four-decade high inflation, supply-chain disruption, and legal abuse are also said to be piling pressure on insurance companies, as per APCIA.

“Insurers do not want to retrench from one of the nation’s most important markets, but cannot continue to operate and protect policyholders when insurers are struggling to secure an adequate rate and manage their risk exposure,” Sampson said.

What’s your view on Consumer Watchdog CEO Harvey Rosenfield’s California regulation reform take? What changes do you believe are needed in the California insurance market? Let us know by leaving a comment below.

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