In a state scorched by a series of devastating wildfires, Californians have seen the costs of insuring their homes soar and coverage options evaporate — if they can find a company to issue a policy at all.
Now, consumer advocates say lawmakers and the state’s insurance commissioner are secretly working on a deal to free up more coverage in the Golden State — but at the cost of caving to insurers’ demands to loosen regulations and let them charge higher rates.
“This would constitute the biggest insurance industry bailout in modern history, rushed through without the public deliberation that placing a burden of this magnitude on policyholders demands,” said Consumer Watchdog founder Harvey Rosenfield.
In a state with the country’s strongest consumer rate protections, big insurers like Allstate, State Farm and Farmers have put the brakes on new policies, leaving many homeowners scrambling for coverage and digging much deeper to pay for it.
The companies say that among other issues, pricing models — based on actual past losses and not on projections of future climate-driven disasters — are not keeping pace as costs to repair or replace homes mount.
But Rosenfield said lawmakers are trying to cram a backroom deal favorable to insurers through the Legislature with minimal public review as it wraps up its term over the next couple weeks, and even caught a longtime industry lobbyist bragging about it to a flight attendant on a plane to the Capitol last week.
Insurance industry representatives have been tight-lipped about the rumored dealings, reported in an Aug. 21 Politico report. That report quoted Sen. Susan Rubio, a Baldwin Park Democrat who chairs the Senate’s Insurance Committee, saying “everything’s on the table, and I don’t rule out something being done.” Rubio and her staff did not respond to repeated inquiries from the Bay Area News Group.
Insurance Commissioner Ricardo Lara’s office said the state’s insurance market “faces challenges” brought on by wildfire and storm losses, inflation, prolonged rebuilding, supply chain disruptions, and high material costs, while “entrenched interests on all sides” are defending “a system that is clearly not working.”
“There is no quick fix,” said Michael Soller, a spokesman for the commissioner. “We will continue moving on regulatory changes intended to address the problems we have seen.”
The commissioner’s office wouldn’t comment on any potential legislative deal in the works, but Soller said that “if needed,” Lara “will pursue legislative action.”
Rosenfield, author of the 1988 Proposition 103 voter revolt that rolled insurance rates back 20% and requires the elected insurance commissioner to approve rate increases, smells a rat. He says insurers, who’ve been gunning for Prop 103 for decades, are limiting new coverage to pressure consumers and lawmakers into loosening regulations, which he said will spur higher rates while making it harder to assess their need.
Rosenfield said it wouldn’t be the first time. He points to a 1991 antitrust investigation by then-Attorney General John Van de Kamp that found “the simultaneous withdrawal of scores of insurance companies from California following the passage of Proposition 103 was the result of collusion among insurance companies.”
“The insurance industries put a gun to the people of California, and the threat is if we don’t let them charge whatever they want and do whatever they want in the state, they will leave the state altogether,” Rosenfield said. “There are some people in Sacramento who think the public should pay the ransom.”
California is hardly the only state grappling with home insurance problems. Hurricane-ravaged Florida has become the poster state for an imploding insurance market.
Insurers have been upfront about what they see as California’s problem. According to the Insurance Information Institute, a New York industry information association, California acreage burned by wildfires has grown over the last decade, more people are living in fire-risk areas, and rising costs of repairing or replacing damaged homes have led to increased insured losses.
But the institute says California regulations prevent insurers from pricing those rising risks into policies. Those rules require insurers to base rates on historic losses rather than using predictive computer climate models. They also keep insurers from passing on to consumers their rising costs for reinsurance — insurance for insurance companies — which they buy to help them absorb major losses. And the bureaucratic approval process slows and restricts the size of rate increases, so they don’t keep pace with rising risk.
“Addressing these California-specific restrictions on how insurers operate could go a long way toward preventing a Florida- or Louisiana-style insurance crisis,” the institute said.
Reportedly, the rumored deal being discussed in the Capitol would do just that.
Rosenfield says California regulations have kept rates manageable, about 5% lower than the U.S. average for a standard policy, at $1,241 a year in 2020 compared to $1,311 nationally, while the comparable rate in Florida was $2,165. And he says consumers should beware of any deal to roll back regulations, arguing it likely won’t require insurers to begin writing new policies in the state. He notes that insurers have been leaving the Florida market even though they can do all the things there they can’t do in California.
Caught in the middle are folks like Anita Stoddart of Boulder Creek. Her mobile home suffered some smoke damage in the 2020 CZU Lightning Complex wildfire. In June, her insurer sent notice that her $700-a-year policy wouldn’t be renewed. That forced her onto the last-resort, minimal coverage FAIR Plan — which just got state approval for a 15.7% rate increase starting in December — and a supplemental policy that will cost her $1,200 a year.
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“I know they consider us all high risk, but it’s getting to where pretty much the whole country is high risk,” Stoddart said, noting the recent catastrophic fire in Hawaii and Hurricane Idalia hitting Florida and other states in the Southeast. “If they want to jack up the rates, there’s no guarantee they’re going to insure you anyways.”
“I understand they can’t pay out more than they take in,” Stoddart added. “But something’s got to be done, because people have to have homes, and you have to have insurance if you have a mortgage. I don’t know what the solution is.”