A brokerage leader has slammed California’s insurance commissioner, Ricardo Lara, for the worsening property insurance crisis in the state, saying over-regulation is contributing to increasing rates and carrier pullouts.
“At the core, the insurance commissioner is exponentially compounding the problem,” said Jamie Reid (pictured), chairman of the board at C3 Risk and Insurance Services.
Despite acknowledging catastrophic weather events due to global warming as the cause of enormous property losses and damage in recent years, Lara has failed to heed calls from the insurance industry on rate increases, according to Reid.
“I have [spoken to] executives from insurance companies saying the department of insurance isn’t responding to requests to increase rates,” he said. “But if they file any rate decrease, the department will approve it relative quickly.”
The insurance commissioner is an elective executive office that is tasked, among other roles, with regulating and approving insurance company rate increases. Reid told Insurance Business that he has tried to reach out to Lara to engage with him on the sector’s needs.
“[The insurance commissioner] is a 100% political position,” Reid said. “This is a business process… [and he should] allow free enterprise to set price.”
The lack of action on insurers’ rate increase requests is hurting consumers more, Reid said, as carriers are unable to sell products at a loss and are forced to either stop writing new business or withdraw from markets entirely.
“He's not approving rate increases, so instead of selling at a loss, insurance companies are saying we're not going to sell the product at all,” Reid said.
One possibility is that consumers will turn to the non-admitted market to fill property coverage gaps. But Reid noted there can also be admitted insurers who file at higher rates for less desirable risks.
“Let's say you love Coca-Cola. You go to a restaurant, and it costs you $2.50,” he said. “One day, the restaurant says, ‘Sorry we can’t sell you Coke, because we’d have to sell it at $3.50 due to costs going up. We filed for a rate increase, but it hasn’t been approved, so until [the commissioner] approves it, we can’t sell it.’
“So, you got another shop, where they tell you the same thing. ‘We can’t sell below $4.’ You go to a convenience store that sells it for $5, and you’re ask, ‘How are they selling Coke for $5 when nobody else can sell it at $3.50 or $4?’ The convenience store says they don’t care if they sell it, they just set the price high, and if that’s what you want, then you’re going to pay the price.
“That’s what’s going on in the property market. Anybody buying property insurance in the state is now being forced to go to the convenience store and pay $5. It's over-governance that’s causing the hyper increase in rates.”
Insurance Business has reached out to Commissioner Lara’s office for comment.
With the likes of Allstate, State Farm, AIG, and Farmers refusing to write some or all new homeowners insurance policies in California, the state should allow insurers to file necessary rate increases so that competition forces pricing in line with a healthy economy, Reid argued.
“We're not going to sell the product at a loss, and until they come to an understanding of that, there's not a solution,” he told Insurance Business.
“They're going to have to approve rate filings where insurance companies’ costs are and until that happens, we're going to have a big problem and it's getting bigger by the day.”
Lara has faced pressure from many sides amid the recent carrier withdrawals. Consumer advocates have called on the insurance commissioner to take action against carriers that have pulled out, but Lara has declined, telling California media that he didn’t have authority.
Meanwhile, Consumer Watchdog founder Harvey Rosenfield has dismissed wider calls for regulatory reform from the insurance industry as bids for “deregulation.”
Rosenfield spearheaded California Proposition 103, which states that insurance companies need prior approval from the insurance commissioner to set property and casualty rates.
“Prop 103 mandates that [insurers] get not only all the revenue that they need to cover their projections of losses, but they're also entitled to a fair profit and reasonable expenses,” Rosenfield said in an earlier interview with Insurance Business. “That's not good enough for them.”
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