SACRAMENTO, CA, March 2, 2023 — Independent insurance agents and brokers are experiencing the worst insurance market for property and homeowners’ insurance that most have ever seen in their careers, and immediate action is required to restore a competitive insurance marketplace, IIABCal told the Senate Insurance Committee this week.
IIABCal was the only producer organization invited to testify at a special oversight hearing, March 1, on the state of the property insurance market. Speaking for IIABCal was Irene Sabourin, a producer at Hub International in Sacramento with over four decades of experience in personal lines—and a member of the California FAIR Plan Board of Directors, representing producers.
“With the advent of the many recent catastrophic wildfires, and the inability insurers across the board to obtain approval from the Department of Insurance to charge adequate rates for this exposure, regular admitted insurers have been retreating from the California Market for the last several years,” Sabourin said. “Not only is this undermining the future of our agency, but it is also having devastating effect on our clients and on the insurance buying public.”
Sabourin told the influential committee that many California property owners today face three unattractive options:
- Purchasing a FAIR Plan policy that in many cases will leave them underinsured;
- Finding a non-admitted insurer willing to issue a policy, at frequently astronomically higher prices, or dramatically reduced coverage, or both; or
- Going without insurance and praying they don’t suffer a loss.
“Insurers tell us, uniformly, that they cannot get adequate rates approved in California, or that it can take years for the Department to make rate decisions, or both. Moreover, insurers have little or no confidence that they can obtain rates that are adequate to support the state’s catastrophic fire exposure they are being asked to assume,” Sabourin said.
IIABCal's Plan To Solve Crisis
IIABCal, with funding from its Legal Defense Fund, has developed a plan that, if enacted by the Legislature or implemented by the Commissioner, could entice admitted insurers to resume writing and renewing policies in areas with the highest exposure to wildfire risk. Sabourin highlighted three of the major aspects of the IIABCal plan in her testimony.
“It is incomprehensible to me that [California insurance rate law] does not recognize the huge reinsurance costs that insurers must pay; and that it does not permit insurers to use widely accepted tools for projecting future losses; and that [the insurance commissioner] takes so long to act upon rate increase requests,” she testified.
The hearing also featured a condominium owner, two HOA representatives, a witness from the California Farm Bureau representing winery interests, as well as witnesses from the Personal Insurance Federation (PIF), the American Property and Casualty Insurance Association (APCIA), and the California FAIR Plan.
Each of the consumers testified that it was almost impossible to obtain an insurer willing to provide a quote to insure their association. When they did find an insurer willing to provide coverage, the premiums requested were multiple times what they paid for previous insurance coverage and at reduced limits. The witnesses complained that the cost of insurance was causing their homeowner dues to soar, or the association to issue special emergency assessments to cover the cost of insurance. They indicated that some residents could not afford such increases and would be forced to sell, and other residents lost the opportunity to sell their property due to the increased assessments. They all complained that the current situation was not sustainable.
Frustration With Outdated Rating Law
PIF and APCIA representatives testified about the industry’s frustration with an outdated rating law that does not allow insurers to look forward to climate change and how that might impact the risk of future losses. They also complained that insurers are not allowed to use the increased cost of reinsurance as a factor in requesting a rate increase and the time it takes the Department of Insurance to review and approve rate increase applications.
Representatives of the FAIR Plan outlined the current financial situation of the Plan and the fact that they are already overextended financially.
Chief Deputy Insurance Commissioner Michael Martinez touted CDI efforts to require insurers to offer “home hardening” discounts, and impose moratoria on insurers’ ability to non-renew policies in wildfire zones. He also noted the Department has ordered the FAIR Plan to expand coverage, and was working with the Plan to approve potentially significant rate increases. However, he asserted that only 3% of the California property insurance market was having severe availability issues, and that the great majority of consumers were not being affected.
Further Hearings Anticipated
Committee chairwoman Susan Rubio said the committee would hold further hearing on this subject as the legislative session progresses. A similar oversight hearing has been scheduled by the Assembly Insurance Committee next Wednesday, March 8, and IIABCal will be providing testimony at that hearing as well.
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