State Insurance Commissioner Ricardo Lara speaks during a news conference with Los Angeles labor leaders and advocates in September. Photo by Alisha Jusevic for CalMatters
A series of last-minute deals emerged before the end of the legislative session Thursday night this week, not the least of which was a much-anticipated proposal — a plan to keep insurers in California despite increased financial risks from wildfires.
Despite the involvement of legislative leaders, Insurance Commissioner Ricardo Lara and Gov. Gavin Newsom, a key deadline passed without a bill Monday night, dooming the effort for the year. Negotiators struggled to find a balance between loosening regulations on the insurance system and maintaining protections for homeowners who could face much higher premiums in order to stabilize the industry, a politically difficult prospect. Is.
The legislature will not return to Sacramento until January, leaving the issue unresolved for the next fire session, although there will be hearings and potential regulatory changes in the coming months that could restart the conversation.
“That’s the progress we’ve made here,” said Michael Soller, a spokesman for Lara’s insurance department. Fixing the home insurance market is now a priority for the state government and there is an urgent need to do something, he said.
During an interview with POLITICO California Tuesday night, Newsom said a working group within his administration has focused on this “waving red flag issue” for months, in addition to discussions with the Legislature.
“So we’ve come up with some different strategies,” he said, declining to specify whether that might include calling a special legislative session or issuing an executive order this fall. “We can do a lot of things. And I am very conscious. We can do all that.”
A spokesperson for the governor said he would have more to announce soon next week.
The wildfires sparked a years-long crisis in California’s insurance market. After devastating fire seasons in 2017 and 2018 wiped out decades of profits, insurance companies began abandoning thousands of customers by refusing to renew their policies.
But the situation reached a state of emergency in May, when State Farm, California’s largest home insurance company, announced it would stop selling new policies statewide altogether. Another major provider, Allstate, soon acknowledged it had done the same a few months earlier, while Farmers Insurance limited its offering in July.
The industry says it has become too expensive to operate in California, blaming the high cost of rebuilding, increased risks from natural disasters and rising expenses from buying “reinsurance,” or insurance, for its losses, which state laws prevent them from passing on to customers. Prevents from.
The lack of insurance options has made it more difficult to build new homes, with devastating consequences, as California tries to climb out of a severe housing shortage. It also jeopardizes the state’s FAIR plan, which provides limited insurance to homeowners who can’t secure a plan through a private insurer. A levy on insurance companies could provide a backstop when losses exceed customers’ premiums, so the FAIR plan faces bankruptcy as insurers leave the market and more homeowners are pushed into the program.
Negotiations for a legislative solution included consideration of whether companies should be allowed to use forward-looking disaster models rather than past losses to set insurance rates, as they are already allowed to do for earthquakes. Is; Should they allow reinsurance to be factored into their prices; How to determine assessments for the FAIR plan; how to speed up regulatory review of rate increase requests; And whether insurers are required to operate in communities at greatest risk of wildfire.
“We thought we had a sensible, viable solution that we could continue to pursue,” said Senator Susan Rubio, a West Covina Democrat who leads the Senate Insurance Committee. “We were ready to get to work this year.”
However, with just a few weeks left to maneuver at the end of the jam-packed session, lawmakers and advocates say it is too late to reach a deal that could garner broad support.
Denny Ritter, vice president of government relations for the American Property Casualty Insurance Association, one of several insurance industry organizations, said there was broad consensus about incorporating disaster modeling and reinsurance costs into rates, but a framework for assessing the FAIR plan had yet to be found. was also unsolved. He said many legislators also wanted to ensure that the bill would benefit consumers as much as it benefits industry.
“Everyone was still trying to focus on hard solutions,” Ritter said. “We just ran out of time.”
An unexpected bomb dropped last Thursday, when Senator Bill Dodd, a Napa Democrat who was involved in the deliberations because his district suffered wildfire damage, publicly declared “the deal is dead” just days before the deadline. ” declared.
Dodd told CalMatters this week that a secret recording of a building industry lobbyist describing his efforts to block a bill from passing through the Legislature was leaked by the advocacy group Consumer Watchdog, scaring many of his colleagues, who were concerned that the scheme would defraud insurance companies. ,
“Even without that, it’s a very complex issue,” Dodd said. “It wasn’t helpful.”
Jamie Court, president of Consumer Watchdog, who recorded the lobbyist on a flight, said consumer groups like his did not have a seat at the table, which invalidated the negotiations for some lawmakers. He encouraged the Legislature to consider homeowner-oriented solutions — such as giving people money to protect their homes from wildfires and then guaranteeing their access to insurance if they do so — more next year. In a transparent process.
“I think privacy was the main thing. No one saw it, not even the people in the building. And this is no way to make a policy,” the court said. “You can’t force it down people’s throats.”
Assembly counterparts tried to keep the talks alive. The day after Dodd’s announcement, Assemblymembers Lisa Calderon, a Whittier Democrat who leads the Assembly Insurance Committee, and Jim Wood, a Healdsburg Democrat whose district has been affected by the wildfires, issued a joint statement indicating that discussions would continue until the final weekend before the end of the session.
But ultimately no proposal came forward till Monday night. Both Calderon and Wood declined multiple interview requests.
“Our caucus has been steadfast in putting consumers first, and I am grateful for their dedication,” Assembly Speaker Robert Rivas, a Hollister Democrat, said in a statement Tuesday announcing a series of public hearings on the insurance system. Hui said. “Our mission has always been to ensure that homeowners and businesses throughout California can access and maintain comprehensive insurance coverage.”
The Senate has no such plan, although Senate President Pro Tem Toni Atkins, a San Diego Democrat, said in a statement, “We know we need to address insurance availability before we experience the market failure seen in Florida and elsewhere. Have to work for.” ,
Attention now focuses on Lara, who as insurance commissioner has broad regulatory authority to reshape California’s home insurance market without the legislature.
During his re-election campaign last year, critics accused Lara of not doing enough to protect homeowners in wildfire areas. His office began enforcing a new regulation in October requiring rate discounts for homeowners and businesses that adopt wildfire safety measures.
Ritter of the American Property Casualty Insurance Association said the solution could largely be handled through regulations. However, even if LARA acts quickly, it will take several months for companies to recalculate rates and get them approved by the insurance department, with the industry complaining that the process takes too long.
“This is not an overnight fix,” Ritter said. “That was part of the heartache with the negotiations – there are no solutions overnight.”
Soler, the LARA spokesman, said a workshop in late September to explore disaster modeling — how it will affect insurance availability and future rates, how models will take into account safety investments — will inform a rulemaking process. can do. He said the department is also working to modernize the FAIR scheme and streamline the review of rate filings.
“The causes are more complex than is often acknowledged,” Soller said. “The solutions are far more complex.”
The Legislature would still like to have its say. Dodd said lawmakers will keep working during the recess and could introduce a proposal next year, based on what Lara does this time, that is ready to move forward immediately.
“Once the insurance commissioner does what he’s going to do, it frames the entire issue and allows all parties to have an opinion,” Dodd said.
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