As the California legislative session was winding down, insurers and the California Department of Insurance (CDI) were working hard on a legislative deal to provide insurers with rate adequacy and increase their appetite for new home and auto submissions. After a few weeks of negotiating, the CDI and stakeholders came to terms on a legislative deal. To all of the agents that responded to our call-to-action, thank you. We were able to generate 1,659 letters to legislators and Governor Newsom. These letters created tremendous pressure and let lawmakers, Governor Newsom, and Commissioner Lara know consumers are losing access to home and auto insurance, and action is required.
As the legislative session came to a close on September 14th, however, legislative leaders (Assembly Democrats) didn’t want to take a hard vote and face voters in their districts as auto and home insurance rates began to rise. Further, lawmakers felt Insurance Commissioner Ricardo Lara created much of the problem and that he has the regulatory power to fix it, rather than ask lawmakers to take a hard vote. Instead, lawmakers adjourned and chose to let the deal die. But before leaving Sacramento, lawmakers and Governor Newsom made it clear to Commissioner Lara that he needed to use his existing regulatory authority to act.
Although we would have preferred a legislative solution where we have more influence over the policy and process, we understood the politics and lawmakers’ apprehension to act. We were anticipating Governor Newsom’s executive order Thursday, followed by Commissioner Lara’s Friday announcement that he will be pursuing executive actions. Although there is no specific regulatory language, key regulatory elements of the plan include:
- Executive action by Commissioner Lara to transition homeowners and businesses from the FAIR Plan back into the normal insurance market with commitments from insurance companies to cover all parts of California by writing no less than 85% of their statewide market share in high wildfire risk communities. For example, if a company writes 20 out of 100 homes statewide, it must write 17 out of 100 homes in a distressed area;
- Giving FAIR Plan policyholders who comply with the new Safer from Wildfires regulation first priority for transition to the normal market, thus enhancing the state’s overall wildfire safety efforts;
- Expediting the Department’s introduction of new rules for the review of climate catastrophe models that recognize the benefits of wildfire safety and mitigation actions at the state, local, and parcel levels;
- Directing the FAIR Plan to further expand commercial coverage to $20 million per building to close insurance gaps for homeowners associations and condominium developments to help meet the state’s housing goals and to provide required coverage to other large businesses in the state;
- Holding public meetings exploring incorporating California-only reinsurance costs into rate filings;
- Improving rate filing procedures and timelines by enforcing the requirement for insurance companies to submit a complete rate filing, hiring additional Department staff to review rate applications and inform regulatory changes, and enacting intervenor reform to increase transparency and public participation in the process;
- Increasing data reporting by the FAIR Plan to the Department, Legislature, and Governor to monitor progress toward reducing its policyholders; and,
- Ordering changes to the FAIR Plan to prevent it from going bankrupt in the case of an extraordinary catastrophic event, including building its reserves and financial safeguards.
It is foreseeable that the CDI may be slow to promulgate regulations, or fall short of providing rate adequacy, improved efficiency in ratemaking, allow the expensing of reinsurance costs, the use of modeling for wildfire risks, more transparency for intervenors, and more. Nonetheless, we are optimistic that there is movement in the right direction and we thank agents for their response to our grassroots calls-to-action. The pressure created by letters and calls from agents has resulted in action by the CDI. As the devil is in the details, the American Agents Alliance will remain vigilant as this process develops, participating and engaging throughout the regulatory rulemaking process to advance the interests and livelihoods of independent agents.
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