Insurance industry bête noire Consumer Watchdog is back in the news after it has ‘voiced strong concerns’ over newly proposed regulations from California Insurance Commissioner Ricardo Lara, claiming they will make home insurance even more unaffordable and difficult to obtain for many residents. The advocacy group argues that the proposals let insurance companies avoid their commitments by merely taking "reasonable actions" towards compliance, and by allowing them to replace their commitments with alternatives.
According to Consumer Watchdog, the regulations, which purport to require insurance companies to increase sales to homeowners in distressed areas, do not mandate ‘affordable pricing’ – something that might well force careers to stay away from the crippled California market. Furthermore, the watchdog claims that the regulations would permit double-digit price hikes through the use of what it calls ‘unverifiable algorithms’ (computer modelling), pushing premiums out of reach for many Californians, and allowing companies to continue "redlining" distressed locations.
“Insurance Commissioner Lara’s plan gives insurance companies two years to comply, but they can start to charge more immediately,” said Carmen Balber, executive director of Consumer Watchdog. Balber criticized the plan for its potential to allow companies to move the goalposts if they fail to meet their commitments, ultimately making the promise of expanded coverage meaningless if premiums remain unaffordable.
The criticism comes as California’s insurance market faces unprecedented turmoil due to frequent wildfires and other extreme weather events. Since 2022, several major insurance companies have paused or restricted new business, including State Farm’s recent decision to stop renewing 72,000 policies. Irene Sabourin, a veteran insurance agent, described the situation as the worst she has seen in 45 years, with only two markets available for homeowners' insurance.
Lara has launched a reform program, the Sustainable Insurance Strategy, to attract insurance companies back to the market while ensuring they offer policies in most areas of the state. This includes streamlining the rate approval process and expanding the use of catastrophe models to predict and base rates on potential wildfires. These reforms are the strongest in 30 years, according to Lara, and aim to modify Proposition 103, the 1988 law that required state approval for rate hikes and allowed for public scrutiny.
“We can no longer look solely to the past as a guide to the future,” he said in a statement. “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.”
While some industry insiders, like Steve Young of the Independent Insurance Agents and Brokers of California, credit Lara for recognizing the need for rate increases, others like Mark Robinson of Michelman & Robinson believe that reforms to streamline the rate-setting process are necessary. Yet, the proposals, particularly the use of catastrophe models, are likely to generate significant debate.
The reforms face a challenging path to implementation, with potential compromises that may leave no party completely satisfied. As Sabourin pessimistically noted, Lara’s proposal might be “too little, too late” to address the current crisis effectively.
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