Commissioner Lara on what's challenging California's property insurance reform

"It would be a failure"

Commissioner Lara on what's challenging California's property insurance reform


By Kenneth Araullo

California’s history includes numerous rapid remedies that haven’t endured, Insurance Commissioner Ricardo Lara stated while addressing legislators on the state’s property insurance market crisis.

“If we lose in court over process, not substance, that would be the ultimate failure,” Lara said to the state Assembly Insurance Committee, reiterating his commitment to implementing reforms by the end of the year.

He emphasized that swift action isn’t feasible due to concerns that “much-needed reform” could face legal challenges under transparency rules mandated by Proposition 103.

As per AM Best, the California Department of Insurance (CDI) plans to introduce changes in July. These changes will allow primary insurers to include reinsurance costs in rate filings if they agree to cover areas prone to wildfires and reduce enrollment in the FAIR Plan, Lara said.

John Norwood, representing the Independent Insurance Agents & Brokers of California, noted that the shift to private coverage depends on the CDI approving adequate rates for the FAIR Plan. He mentioned the “very price sensitive” nature of property insurance and highlighted a significant gap between a recently requested and approved rate hike for the FAIR Plan.

Norwood also expressed concerns from reinsurers regarding the state’s insufficient investment in fire resilience, emphasizing the need for an ongoing commitment.

“We will not carry the cost of other states”

Under the proposed reinsurance cost inclusion, carriers must submit net costs specific to California.

“We will not carry the cost of other states,” Deputy Commissioner Lucy Wang said to the committee.

Wang also indicated that the CDI is hiring experts to develop actuarial formulas necessary for this integration, noting the complexity involved.

CDI officials updated the Assembly committee on May 15 about their progress, which includes proposed changes to expedite the rate-decision process and plans to allow insurers to use advanced catastrophe models in filings.

They must also address privacy issues, as modeling companies resist submitting their models under Prop 103 due to transparency requirements, which can prolong reviews for up to two years, Wang explained.

Lara highlighted that his regulatory actions would be faster than legislative measures. He thanked legislators for funding to expand the CDI’s staff, offer overtime, and hire consultants.

Lara also noted that Californians are already seeing market improvements, citing announcements from insurers like Mercury General and Farmers.

He emphasized the need for thorough, deliberate action to ensure regulations meet Proposition 103’s mandates, preventing future commissioners from facing similar issues.

The CDI has approved rate increases for the state’s 10 largest homeowners’ insurers over the past five months, reflecting the “tremendous urgency” of the department’s efforts during the crisis, it was stated.

Lara underscored the significance of the upcoming reforms, comparing them to the landmark Proposition 103, which required extensive regulatory and legal work to implement.

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