California Insurance Commissioner Ricardo Lara has finally made a move to improve the rate renewal process for insurers. The goal is to fix a very broken homeowners insurance system in California.
Unpredictable wildfires and expensive home repairs, or total losses, and an inability to adjust rates led many insurers to abandon the state completely, or to limit policies sold.
The commissioner made his move after California Governor Gavin Newsom signed an executive order that basically told him to get going. Newsom wants “prompt regulatory action,” and if things don’t go well with that fix, he is to consider emergency actions.
“We are at a major crossroads on insurance after multiple years of wildfires and storms intensified by the threat of climate change. I am taking immediate action to implement lasting changes that will make Californians safer through a stronger, sustainable insurance market,” Lara said when he launched his reforms.
And with that, the commissioner mentioned the obvious. He said the current system is not working. And he announced a series of reforms that Lara claims will help the state change course.
“I will continue to partner with all those who want to work toward real solutions,” Lara said. “We are at a major crossroads on insurance after multiple years of wildfires and storms intensified by the threat of climate change. I am taking immediate action to implement lasting changes that will make Californians safer through a stronger, sustainable insurance market,”
This is what the Department of Insurance is going to do:
- Improve the rate approval process to make it more efficient, fast and transparent
- The rate approval process should take into account all factors necessary to promote a robust, competitive insurance marketplace
- Expand coverage options, particularly in underserved areas of the state
- Maintain the solvency of the FAIR Plan by reducing its overall market share in underserved areas of the state and moving policyholders to the admitted market
- Accelerate implementation of changes by having the California Department of Finance support CDI in the rulemaking process
As you know, carriers have been complaining about the very difficult rate increase approval process because of Proposition 103 that gave the California insurance commissioner too much power in that process.
The catastrophic losses experienced by consumers and businesses and inflation means insurers need to raise rates to compensate. Until now, Lara hasn’t acted in a manner that helps insurers afford to stay in the market.
Denni Ritter is the vice president for government relations for the American Property Casualty Insurance Association (APCIA). Ritter said Proposition 103’s rules are outdated and no longer serve the consumers as it was designed. Reforms — Ritter said — are desperately needed and this is the first step of many.
“Everyone understands that California’s insurance market is in a spiraling crisis that requires immediate policy solutions to protect consumer access to the coverage they need,” Ritter said. “We will continue to work with the insurance commissioner, the governor, the California legislature and other stakeholders to promote meaningful reforms, including the assurance of timely approval of adequate rates that bring stability and availability to the market so Californians can access the insurance they need to protect their homes, cars, and businesses.”
Easier said than done. Rene Swan is the executive VP of the Renaissance Alliance in the west. She said the real problem is Proposition 103. It is in the way and needs changing.
“Due to an initiative passed in 1988 (Proposition 103) that was intended to protect consumers, when carriers apply to the state’s DOI to raise rates by 7% or more in personal lines or 15% or more in commercial lines, they can face an ‘intervenor’ in a public hearing (which are sometimes delayed for up to two years) to decide whether the rates are warranted,” Swan recently wrote.
She says because of that, insurers often want much smaller increases — increases that help them avoid that lengthy public hearing process. Unfortunately, they aren’t enough to compensate for the losses they’re currently experiencing, or — in many cases — the commissioner has moved very slowly on the proposed increases, or not moved at all.
So insurers have said enough is enough and have left the homeowners market in California.
Ritter, too, says Lara’s actions are a good first step toward a real fix. “Everyone understands that California’s insurance market is in a spiraling crisis that requires immediate policy solutions to protect consumer access to the coverage they need,” Ritter said. “We will continue to work with the insurance commissioner, the governor, the California legislature and other stakeholders to promote meaningful reforms, including the assurance of timely approval of adequate rates that bring stability and availability to the market so Californians can access the insurance they need to protect their homes, cars, and businesses.”
Source link: PropertyCasualty360.com — https://bit.ly/3t4dHoJ
Source link: Associated Press — https://bit.ly/3PAZpnr
Source link: Insurance Business America — https://bit.ly/3PwEhi6
