California Oversight Commission Proposes Solutions to State’s Home Insurance Crisis

Post published:November 6, 2024
Post category:Uncategorized

By Megan Fan Nunce Reporter, San Francisco Chronicle

An independent state oversight commission has weighed in with its suggestions on how to solve California’s insurance crisis.

Earlier this year, the Little Hoover Commission took nine hours of public testimony from experts including California FAIR Plan President Victoria Roach and former Insurance Commissioner Dave Jones to study the causes of California’s insurance crisis and come up with a set of recommendations for state legislators and regulators.

The draft report, which commissioners voted to adopt Thursday, contains 11 recommendations spanning from crafting statewide mitigation standards to increased data transparency at the Department of Insurance.

The Little Hoover Commission is a nonpartisan independent oversight committee designed to craft legislative proposals without the strict timelines of the Legislature. Its past recommendations have informed legislation on intimate partner violence, forest management and more.

Several of the commission’s home insurance recommendations echo existing parts of the Sustainable Insurance Strategy — a slate of reforms proposed by Insurance Commissioner Ricardo Lara that are set to be enacted by the end of the year.

The commission expressed support for the department’s proposal to allow insurers to use forward-looking wildfire catastrophe models and the cost of reinsurance — meaning insurance for insurers — when setting their prices. It also suggests the Legislature should convene experts to create a public catastrophe model, an initiative Lara unveiled in September.

But the recommendations urge officials to go further in some areas.

For example, the report recommends the department should create an independent panel of experts to create standards for evaluating insurance companies’ usage of private catastrophe models, rather than relying solely on the department’s internal analysis. It also calls on the Legislature to make sure that wildfire mitigation efforts performed by homeowners are reflected in those models. A piece of legislation doing just that passed the Senate this past session, but was ultimately scotched in the Assembly.

The report adds that the state should form a working group to develop a minimum set of wildfire mitigation standards for homeowners to undertake. Three such standards exist — the Department of Insurance’s Safer From Wildfires measures and the Insurance Institute for Business and Home Safety’s Wildfire Prepared Home and Wildfire Prepared Home Plus certifications.

All three were developed with insight from experts and the insurance industry and come with rewards for homeowners — state regulations require insurers to give discounts to homeowners who comply with the Safer From Wildfires standards, and some insurers offer guaranteed coverage or discounts to homeowners who get an IBHS certificate.

But the report notes that each set of standards is slightly different and there is no consistent framework for how insurers account for community-level mitigation.

The commission suggests a working group formed by the Department of Insurance, Cal Fire and other experts could develop minimum standards for both homeowners and communities to comply with. It also suggests the Legislature should ban homeowners association rules and local ordinances from preventing homeowners from performing mitigation work.

To make it easier for homes to comply with those standards, the commission also urges the state to create financial incentives for mitigation work such as grant programs, tax breaks or free home inspections.

All of the above would benefit from better data collection and transparency, the report writes. It recommends the Legislature should require the development of a statewide database for insurance companies and local officials alike to understand wildfire risk and mitigation in their area.

The recommendations also call on the Department of Insurance to increase the accessibility of data about nonrenewals and the FAIR Plan, among other measures, for homeowners and policymakers to track the health of the market.

Ahead of the Thursday vote on the report, the Department of Insurance’s Chief Deputy Commissioner Michael Martinez sent a letter to the commission supporting the draft report and pointing out its similarities with the Sustainable Insurance Strategy.

“Increasing insurance availability and restoring market stability are goals that I believe are shared between the Department and the Commission. Both the Department and the Commission also recognize the importance of expanding insurance options in especially high-risk and underserved areas of our state. Our Strategy is designed to attract insurers back to the California market by focusing on both availability and stability, especially in our state’s wildfire-distressed areas — objectives that I am pleased to see echoed in your draft report,” Martinez wrote.

But commissioners noted, both in the report and at their meeting Thursday, that the report was crafted without a full conversation with Lara or the department he leads.

“It is distressing to me,” said Commissioner Janna Sidley, who served on the subcommittee that created the report. “We tried to bend over backwards in order to get the Insurance Commissioner’s office to participate. They absolutely were just not available to us at all.’

Commissioner Anthony Cannella, who previously served in the state Senate with Lara, defended him, saying he knew him to be someone who wants to be engaged and that it was “unlike him” to not participate unless he had been advised not to.

Commissioner David Beier said Martinez’s letter did not acknowledge the commission’s recommendations that go beyond the Sustainable Insurance Strategy — such as the statewide database or the independent commission on catastrophe models.

“The work of the Insurance Commissioner is to be applauded insofar as it’s action. But I don’t think we should rest merely on what the Insurance Commissioner has decreed as the end, and that’s why this report is so important,” Beier said. “It goes well beyond what the Insurance Commissioner has proposed, and I think it has a sense of urgency which is necessary to deal with the ongoing problems.”

Executive Director Ethan Rarick said commission staff were already contacting legislators to work on turning the report’s recommendations into legislation during the upcoming session, which starts in December.

Reach Megan Fan Munce: megan.munce@sfchronicle.com