SACRAMENTO, CA, Feb. 3, 2023 - IIABCal is going on the offensive to restore the California property insurance marketplace and is now finalizing a sweeping legislative proposal that would give insurers significant reasons to resume writing and renewing property insurance risks, even in high fire severity risk zones.
The IIABCal plan, being developed by legal and actuarial experts hired by the Association, has three elements:
- First, permitting insurers to build their reinsurance costs into their rate filings. Incredibly, CDI does not allow insurers to include reinsurance costs in the formulas that determine the maximum allowable rates. Especially in the wildland urban interface, where the risk of catastrophic wildfire loss—and the cost of reinsurance—is greatest, this deliberate omission virtually guarantees rate inadequacy.
- Second, allowing insurers to use the empirical risk modeling in ratemaking. Currently, insurers are required to justify rates solely on their own historic loss history. This carries two potentially significant disadvantages: 1) the larger the data base, the more reliable actuarial analysis can be, so it makes no sense to prohibit insurers from using credible industry wide data; 2) prospective risk modeling is a far more accurate way to assess probable future losses. Such modeling is already in wide use in California, by CalFire and the California Earthquake Authority, as well as by private insurers in other states.
- Third, by preventing the Department of Insurance from ignoring or indefinitely stalling its review of rate change applications. California law has long included a provision that gives the Commissioner six months to evaluate proposed rate change applications. If the Commissioner has not acted upon those requests within that time, then the applications are “deemed approved.” However, CDI has routinely pressured insurers to “waive” or forego this requirement—which has led to rate applications languishing in the Department for multiple years. Our proposal would require action from the Department within six months.
"Insurers, and their trade associations, are understandably reticent to criticize the Commissioner too harshly because of the vast authority he wields over their operations and profitability—but we operate under no similar constraints," IIABCal President Jonathan Schreter said. “In a politicized environment where the leading admitted insurers can’t use state-of-the-art underwriting tools, and can’t get approval of the rates they need in order to write the massive risks they are being asked to assume, it’s little wonder that most independent agency companies have curtailed or greatly restricted their new and renewal business."
The wording of the IIABCal legislation is now being finalized, and work is underway behind the scenes to find a legislative author and build political support within the industry, and with outside allies, to support the Association’s bill.