Insurance group calls for reform of California's regulatory framework

The American Property Casualty Insurance Association (APCIA) has expressed concerns over the precarious state of the insurance marketplace in California, calling for the reform of the state’s regulatory framework.

APCIA president and CEO David A. Sampson issued a statement highlighting the importance of regulatory reforms after Farmers Insurance joined other major carriers in limiting new homeowner policies in California.

“Insurers do not want to retrench from one of the nation’s most important markets but cannot continue to operate and protect policyholders when insurers are struggling to secure an adequate rate and manage their risk exposure,” said Sampson.

Central to the group’s argument is the “outdated” nature of Proposition 103, which requires insurers to obtain prior approval from the California Department of Insurance (CDI) before implementing rate changes.

“California’s regulatory framework is 35 years old and is ill-equipped to handle the increasing challenges wrought by climate change and is resulting in the insurance market upheaval California faces today,” he said. “It is time to modernize Proposition 103.”

While the CDI has acknowledged the necessity for rates to reflect actual and future risk, Sampson said the current regulatory scheme has made it difficult for insurers to put this idea into practice.

“Insurers must have the financial strength to deliver on our promises to customers when disaster strikes,” he said.

To address the volatility in California’s insurance marketplace, the APCIA proposed the following solutions:

• Allowing the use of forward-looking catastrophe modeling in rate filings
• Allowing the use of reinsurance in ratemaking
• Streamlining the rate filing process to meet statutory timeframes
• Reforming the California FAIR Plan assessment process to reduce exposure for remaining private insurers
• Advocating for expanded wildfire mitigation efforts to reduce risk and improve coverage in high-risk areas

“Insurers understand that homeowners are struggling right now,” said Sampson. “Insurance affordability and availability have a very real impact on families, individuals, business owners, and communities. That’s why we are advocating for solutions.”

Insurers pulling back from California’s volatile market

Farmers’ decision to limit new business in California came into effect on July 3, according to a report by the San Francisco Standard.

A company spokesperson said the decision has to do with “record-breaking inflation, severe weather events, and reconstruction costs continuing to climb.”  

State Farm had cited similar reasons after it announced in late May that it will no longer issue new home insurance policies in California. Allstate pulled back from taking on new business in the state last year.

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