California’s Insurance Crisis — Are Commissioner Lara’s Reforms Working

The Pacific Research Institute is a Libertarian think tank. It published a new report last week titled, How California Burned Down Its Home Insurance Market and Why Regulatory Reform Can Rebuild It.

Looking at the crisis history, the publication’s author, Free Cities Center director Steven Greenhut said wildfires did not cause California’s insurance crisis. The problems were caused by Proposition 103’s rate-approval system.

The paper also notes Commissioner Ricardo Lara’s insurance reforms in the Sustainable Insurance Strategy are working. The reforms have increased the speed of rate reviews, lets insurance companies use catastrophe modeling to set rates and allows them to factor reinsurance costs into rate increases.

As a result, carriers responded and expanded policy availability. Greenhut warns the next commissioner — to be elected in November — could undo all of Lara’s work and send the state back into crisis.

Two two candidates are Democrats. State senator Ben Allen and former San Francisco supervisor Jane Kim are vying for the position. Their approaches to insurance — rate regulations and the FAIR Plan — are very different.

Candidate Allen says he will work to build upon, and improve, the reforms put into place by Lara. He is in favor of more expansion in the private market, hiring more staff to take care of claims and complaints and for more accountability by the FAIR Plan.

Kim — in her campaign material — has published a paper titled, Disaster Insurance for All. She wants a taxpayer-funded authority to guarantee, and sell, wildfire and flood coverage insurance that is outside the traditional insurance market.

Another issue the winner of the November contest will have to confront is the FAIR Plan. It is is growing into a huge insurance issue for the state. The crisis brought on by rate challenges, insurers not writing or renewing policies, and some even refusing to participate at all in California, pushed hundreds of thousands of people to the FAIR Plan.

Wholesale broker, Amwins gave Greenhut statistics on the FAIR Plan and showed by March of this year the plan having $750 billion in exposure. That’s up 242% from September of 2022.

KQED has a different, higher number, for the FAIR Plan exposure. As of June this year, KQED says exposure is $768 billion. The FAIR Plan only has $200 million to $400 million in its coffers to pay damages.

Source link: Insurance Business America — https://bit.ly/3Vbckmi