SACRAMENTO, CA, August 15, 2018 - IIABCal yesterday delivered to the California Legislature a position paper that outlines a pending homeowners availability crisis.
"There has been much fanfare related to the increased liability of investor-owned utilities (IOUs) for wildfires, the cost of reinsurance for these entities, and the effect of global warming and climate change," IIABCal told California lawmakers. "Frankly the experience of the IOUs with these realities of ‘the new normal’ pales in comparison to how these same factors affect the Property and Casualty Insurance industry in California."
IIABCal said the facts are as follows:
1. 45 of the 58 counties in California have experienced population growth since 2012. Given the already heightened construction demand from the wildfire losses in 2018 and favorable housing market, the continued demand for construction labor and materials following the current Carr wildfire in northern California may lead to higher insured losses. Ultimately, 2018 may produce greater losses for insurers compared with 2017.
2. 12 of the last 19 years in California have seen below average precipitation. The combination of longer sustained higher temperatures along with less frequent rainfall heightens the risk of fire.
3. For homeowners and farmowners insurance companies in California, direct losses incurred nearly quadrupled to $16.0 billion in 2017, compared with $4.2 billion in 2016, mainly due to the 2017 fire season.
4. The 10 largest premium writers in California posted a direct loss & adjustment expense ratio in 2017 that was also nearly four times higher than was reported in 2016 on average.
"Based on these facts, homeowners insurance companies in California have set a very high standard. They have paid out billions of dollars in claims, spent hundreds of millions of dollars annually in reinsurance costs and are dealing with the realities of climate change, while California’s regulatory scheme severely restricts their ability to recover these costs," IIABCal said.
"IOUs complain that California is one of the only two states that apply inverse condemnation (IC) to investor owned utilities, but for insurers, California’s regulatory scheme prohibits increased reinsurance costs and modeling for climate change to support an application for an insurance rate increase," IIABCal said in its letter.
"While some consumers have experienced increased costs for homeowners insurance, those increases have not come as a result of insurers being granted rate increases by the Insurance Commissioner. In fact, some companies that have filed for a rate increase have been ordered to reduce their rates in the face of these staggering claims and increased reinsurance costs.
"Bottom line, independent insurance agents and brokers fear that if the Legislature changes the rules for subrogation relative to wildfires, it will result in an insurance availability crisis for property insurance in rural and urban interface areas like California has never experienced. This will adversely affect our clients as well as the ability of our agents and brokers to place insurance.
"For all of the reasons set forth above, we urge the Legislature to concentrate on what can be done to mitigate and/or prevent wildfires, provide firefighters with the proper equipment to fight these fires, improve the emergency communications systems and address building issues that contribute to loss of property but to do no harm relative to trying to alter the liability system that currently serves to balance the interests of utilities, insurers, public entities, and consumers."