Consumer Watchdog has expressed strong opposition against Insurance Commissioner Ricardo Lara’s proposed changes in California.
In the consumer advocate’s view, letting insurers use private black-box models and artificial intelligence in predicting the risk of catastrophic wildfires will raise home insurance prices without transparency or accountability.
In its testimony during Tuesday’s Department of Insurance workshop on catastrophe modeling and ratemaking, Consumer Watchdog asserted: “The industry’s solution is the use of black-box catastrophe models to determine how much people will have to pay for insurance. But allowing insurers to use catastrophe models will not solve this crisis.
“The evidence is clear from states that already allow the use of models. In Florida where catastrophe models have long been in use, home insurance rates are two to three times higher than California, insurers have left the state in droves, and Florida’s insurance company of last resort has five times the number of policyholders as our FAIR Plan.”
For Consumer Watchdog executive director Carmen Balber, mandating non-disclosure agreements to meet modelers’ confidentiality demands will prevent regulators and independent public interest groups from testing the accuracy of the models and from publicizing their analysis.
“Climate-driven weather events have undoubtedly increased, and models used in the right way can help insurance companies better gauge changing climate risk,” Consumer Watchdog stated in its testimony. “Yet models are notoriously inaccurate, inconsistent, and contain biases that threaten to restore redlining and other notorious discriminatory practices.
“Catastrophe models will simply be tools for insurance companies to charge more unless California mandates transparency into how they impact prices, imposes rules of the road requiring review and approval of their design and use, and requires that insurance companies use them to provide consumers and communities with actionable information about their own climate risk.”
The nonprofit organization declared: “A public model – with no need to keep data secret – would best serve these goals.”
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