SACRAMENTO, CA , March 9, 2022 —The Legislature should pressure California Insurance Commissioner Ricardo Lara to engage in serious negotiations with stakeholders to restore the health of the personal and commercial property insurance markets, IIABCal told members of the Assembly Insurance Committee this week.
IIABCal was the only producer organization invited to testify at a special hearing, March 8, on the California FAIR Plan and the crisis of availability in the private insurance market.
Formal Talks Needed
“IIABCal would strongly urge legislators, the regulator, and the industry to engage in a series of formal talks to look at every conceivable option to address this availability crisis,” testified John Norwood, IIABCal’s longtime lobbyist. “California consumers deserve the highest level of attention to this issue that even now has statewide consequences and will only grow larger with the anticipated effects of climate change.”
Echoing testimony offered at a special Senate Insurance Committee hearing last week, Norwood told the committee that independent insurance agents and brokers are experiencing the worst insurance market for property and homeowners’ insurance that most have ever seen in their careers.
IIABCal Has A Plan
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. The elements of that plan—allowing insurers credit for reinsurance expenses, permitting them to use widely accepted tools to model future risks, and requiring the Department of Insurance to approve rate increase requests more quickly—were discussed at length in the hearing.
Insurance Commissioner Ricardo Lara acknowledged that California is the only state that disallows reinsurance costs to be included in rate making formulas, and expressed the concern that insurers could not isolate reinsurance costs on solely California risks—a claim insurers roundly denied.
The Commissioner also asserted that risk modeling technology is new and untested—another claim several witnesses rebutted, noting that such programs are already used by CalFire, the CEA, and other California agencies.
Lara also stated that he was “not comfortable allowing insurers to use tools that would increase costs” to policyholders.
FAIR Plan Is "Undercapitalized"
Much of the hearing focused on the operations of the California FAIR Plan. Its president, Victoria Roach, declared that the Plan was seriously “undercapitalized” and could not pay claims in a catastrophic loss without assessing potentially billions of dollars to participating insurers.
State law requires the Plan to charge rates that are actuarially adequate to cover the risk it is insuring, but because CDI refuses to allow even the FAIR Plan to include its reinsurance costs in rate formulas—and because a rate increase application has been languishing in the Department for some time—the Plan’s rates are currently inadequate.
Roach expressed concern about a proposal, being discussed but not yet introduced in blll form, that would require the Plan to offer homeowners associations dramatically increased coverages. At present, CFP offers a maximum of $8.4 million in coverage per HOA location, covering all buildings therein; the bill would require coverage of up to $20 million per each individual structure.
Should that be enacted, the heightened reinsurance costs alone could require assessments on insurers so large that it could force many of the smaller companies still in the private, admitted market to stop writing property policies altogether, she said.
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