Following delays in legislative efforts to address the review process for home insurance rate hikes, California Insurance Commissioner Ricardo Lara has taken action to expedite the reviews himself. The decision is in response to the growing pressure from insurers retreating from the state's market due to escalating wildfire losses.
It currently takes an average of seven months for insurers to receive decisions on their rate applications, which was described as “unsustainable” by Lara. Insurers like State Farm and Farmers have started declining to renew existing policies or writing new ones, exacerbating the problem. Lara emphasized the urgency of the situation in a written statement, noting that both consumers and businesses are suffering.
Lara issued a bulletin on Friday, August 9, as part of his broader Sustainable Insurance Strategy. It aims to stabilize the home insurance market through a series of reforms. The new measures require the Department of Insurance to review complete rate applications within 60 days.
If a decision cannot be reached during that time frame, regulators will be required to write a detailed explanation of the remaining unresolved issues. The process allows up to two additional 30-day extensions. After that, the department will issue an "estimated" rate the insurer can accept or reject. If rejected, the process will continue with 30-day extensions.
This approach is similar to Governor Gavin Newsom's proposal last May, which sought to impose similar timelines on the rate review process through a “trailer bill” attached to the state budget. However, the proposal faced opposition from Consumer Watchdog, a Los Angeles-based advocacy group instrumental in passing Proposition 103 in 1988.
The initiative gave the state's insurance commissioner the right to deny insurer rate hikes and allowed consumer groups to intervene in the review process. Consumer Watchdog mentioned concerns that speeding up the review process would diminish consumer input and weaken their role in regulating rates.
Despite the concerns, Newsom has voiced support for Lara's actions, saying it is a necessary step to address the state's insurance crisis. On the other hand, the Department of Insurance has faced scrutiny for its practice of seeking automatic waivers from insurers when it cannot meet the 60-day review deadline mandated by Proposition 103, a practice that has contributed to the lengthy review process.
President of the Personal Insurance Federation of California, Rex Frazier, said the bulletin aligns with broader efforts to make California's insurance market more attractive to insurers. However, he said it remains to be seen how these changes are implemented, including the new requirement that regulators offer an “estimated” rate within 120 days of the initial rate filing.
Meanwhile, Consumer Watchdog remains wary of the potential for "rate giveaways" under the new estimated rate provision. The group is ready to monitor the implementation closely and will consider legal action if it believes Proposition 103 is being violated.
Lara also issued another bulletin preventing insurance companies from canceling or not renewing policies for some 185,000 policyholders affected by the Park, Borel and Gold Complex fires.
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