California insurance commissioner details fixes for industry

SACRAMENTO, Calif. (CN) — Homeowner insurance rates in California have exploded over the past few years.

During Wednesday’s state Senate Insurance Committee meeting, Democratic state Senator Marie Alvarado-Gil said constituents have told her of rates rocketing from $1,200 a year to over $10,000 to insure their homes.

Parts of her district, like much of California, are prone to wildfires. It extends from Truckee in the Sierra Nevada Mountains, includes South Lake Tahoe — which was threatened two years ago by the Caldor Fire — and encompasses Death Valley National Park in the south.

Many people in the state been priced out of their homes over insurance costs. Senator Janet Nguyen — a Huntington Beach Republican — said her office has received hundreds of complaints about it.

“We are at a crossroads here,” Insurance Commissioner Ricardo Lara said.

Lara attended Wednesday’s meeting remotely to talk about the issue and offer potential solutions.

According to Lara, seven insurance companies comprise 85% of the marketplace. All of them have either limited or paused writing homeowner insurance policies in California.

This week, Hartford Financial Services Group announced that it would stop writing new homeowner's insurance policies in the state starting next month.

Couple that with people’s over-reliance on the state’s Fair Access to Insurance Requirements plan, called the FAIR plan, and the problem grows even worse.

The FAIR plan is supposed to serve as an insurance of last resort. Instead, for many homeowners it’s become the only resort, as traditional insurance companies back away from the state. Use of the plan grew by 20% last year.

“Insurance companies are still not writing new policies,” Lara said.

He added that the FAIR plan offers limited coverage at a higher cost. More people using it threatens the solvency of the system.

To help fix the problem, Lara has two primary goals: increase the availability of insurance and decrease the pressure put on the FAIR plan.

He intends to achieve that through regulatory changes, including to the rate application process. Insurance companies have been able to submit incomplete applications, filling them out as the process advances. That can significantly lengthen the time required to complete the process.

Lara said he will require all applications be completed before they are submitted.

The insurance commissioner also has hired more actuaries and analysts to help with the workload.

Altering how homeowner insurance rates are calculated is another avenue. Lara said that for 30 years the industry has used past information to determine future losses. Record-setting losses over the past few years have poured fuel on rate growth.

What isn’t accounted for in determining rates is home hardening and fuel reduction — such as removing fallen and low-hanging limbs and ensuring those fire fuels don’t encroach on a home.

Increasing the availability of reinsurance — a kind of insurance for insurance companies, when one insurer offloads some or all of risk to another insurer — is also part of the commissioner's plan.

“Time is of the essence, but this is something we can’t do overnight, unfortunately,” Lara said.

The commissioner wants to see the changes implemented by the end of this year. Once implemented, he foresees a rise in the availability of insurance choices, which means more competition and better rates.

State Senator Susan Rubio — a Baldwin Park Democrat and the committee’s chair — called Wednesday’s meeting a continuation of an ongoing discussion and an opportunity for stakeholders to keep in contact with each other.

“We need new tools to deal with these new problems,” Rubio said.

Laura Curtis, with the American Property Casualty Insurance Association, said during public comment that the state’s outdated insurance framework has failed people. She advised that the rate-making process be streamlined.

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