Special Report: Commissioner Lara Introduces the Next Phase of California’s Sustainable Insurance Strategy

California Insurance Commissioner Ricardo Lara has released what he calls the “next phase” of his Sustainable Insurance Strategy. It’s the commissioner’s attempt to right the state’s listing — and some say — sinking homeowners insurance market.

There will be a workshop on April 23rd to get input from insurers, the public and consumer groups. After that hearing, Lara will submit the regulations that are within the plan to the Office of Administrative Law.

The commissioner’s goal is to have the insurance reforms he’s proposing set in stone by December of this year. Once it’s all done — if it actually gets done — Lara says the reforms will be the biggest, and most important, insurance reforms in 30 years.

“My Sustainable Insurance Strategy is intended to address decades-long neglected issues. Under outdated rules, the growth of climate-driven mega fires has supercharged insurance costs for many Californians while making insurance harder to find,” Lara said in his news release. “We can no longer look solely to the past as a guide to the future.”

Lara said for the last 30 years the state’s insurance regulations have allowed insurance companies to apply a catastrophe factor to rates. Those factors are based on historical wildfire losses.

“My strategy will help modernize our marketplace, restoring options for consumers while safeguarding the independent, transparent review of rate filings by Department of Insurance experts, which is a bedrock principle of California law,” Lara said.

Currently, the Department of Insurance allows the use of catastrophe models for earthquake losses and fire losses that follow an earthquake. The commissioner said those rules are outdated and have contributed to the huge increases in homeowners premiums.

His proposed rules will expand the use of catastrophe models to include wildfire, terrorism and flood lines for homeowners and commercial lines of insurance. And Lara says his plan will have major benefits for California homeowners and businesses.

Here are comments on the proposed changes from his news release.

More reliable rates: Insurance consumers will have more stable costs than under current regulations, which have resulted in sudden and steep increases for those at higher risk of wildfire.

Greater availability of insurance: Insurance companies will increase their writing because they can better anticipate future losses, rather than making abrupt decisions to non-renew higher-risk policyholders, pause writing, or rapidly increase rates.

Stronger oversight: The Department of Insurance will have strong public oversight of modeling, which is already being widely used by insurance companies outside of rate-making and across the nation. The Department will have access to models and build expertise, so California can continue to lead on consumer protection.

Safer communities: Catastrophe models can capture efforts taken by federal, state, and local governments, property owners, communities and utility companies to mitigate the exposure of communities to catastrophic events – encouraging and rewarding those efforts.

Lara’s news release also said the new regulations will correct a problem in current regulations that do not account for wildfire mitigation.

“The regulation specifies that any model must incorporate the best available scientific information on risk mitigation at the property, community, and landscape scales, including risk mitigation initiated by local and regional utility companies,” Lara’s news release said. “This forward-looking change will also enhance a recent regulation that Commissioner Lara spearheaded and now enforces, requiring wildfire safety discounts for homeowners and businesses and aligning with record investments in wildfire mitigation by Governor Newsom and the California Legislature.”

Mark Sektnan is the vice president for state government relations for the American Property Casualty Insurance Association (APCIA). His organization is liking what it sees.

“As Californians grapple with record inflation and become increasingly vulnerable to climate-driven extreme weather, including catastrophic wildfires, this is a critically needed tool to help identify future risks more accurately and set rates that reflect our new reality,” Sektnan said. “More accurate ratemaking will help restore balance to the insurance market and ensure all Californians have access to the coverage they need. We look forward to working with the Department of Insurance on implementing this forward-looking solution and other desperately needed reforms to fix the insurance crisis.”

Anticipating consumer group criticism, Lara said the regulations will comply with California’s already strong consumer protection laws.

“The proposed regulation creates a new process for review of models by a panel of experts overseen by the Department of Insurance — before insurance companies can use them in a rate filing and meet the stringent transparency requirements under Proposition 103,” the news release added. “The panel would evaluate the appropriateness and soundness of each model and a Department of Insurance official would determine what information about the model must be included in rate applications. Any member of the public can participate in this review.”

Consumer Watchdog isn’t buying Lara’s consumer concerns and is already expressing worries as to how these new regulations will affect consumers. The biggest issue is whether the models insurers will be using to set premium rates will be accessible to the public.

“The rule fails to spell out whether, or how, the Department of Insurance would assess a model’s bias, accuracy, or the validity of the science, instead creating a pre-review process that appears primarily focused on determining what information companies must disclose and what they may conceal from public view,” Consumer Watchdog said in its news release on the matter.

The group also does not like the non-disclosure agreements (NDA) that keep the confidentiality of the proprietary model developers. By adopting the NDAs, consumers could be kept from sharing their analysis of the models from the general public.

“The rule also proposes expanding the use of catastrophe models far beyond wildfire loss, explicitly expanding them to flood and also allowing the Commissioner, at his discretion, to approve their use in any line of insurance,” Consumer Watchdog’s news release concluded. “That could mean auto, non-wildfire residential or commercial, cyber insurance and more. It would also allow insurers to use models to predict all losses, not just catastrophe losses, a dramatic departure from current practice and one that would guarantee an explosion of rates.”

Source link: California Department of Insurance — https://bit.ly/43ndD1E

Source link: Insurance Business America — https://bit.ly/49WlFAR

Source link: Insurance Journal — https://bit.ly/4amYsrB

Source link: PropertyCasualty360.com — https://bit.ly/4aewvCJ

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