Insurance lobbyists are scheming with Sacramento officials to neuter the consumer protections of insurance reform Proposition 103 as part of a last-minute industry bailout that will cost California homeowners, renters and condo owners potentially thousands of dollars every year.
Proposition 103, approved by California voters in 1988 after a David vs. Goliath battle at the ballot box, bars insurance price-gouging. Companies must prove that the premiums they want to charge are necessary to cover projected claims, reasonable expenses and a fair profit. Unique in the nation, the initiative has saved Californians hundreds of dollars annually on their auto and property insurance — which is why the insurance industry badly wants to derail it.
The deal being brokered in Sacramento would also bail insurers out of their responsibilities under the California FAIR Plan. That’s a state-created, but industry-controlled, operation through which people who aren’t able to purchase coverage from an individual insurer can still buy a policy — though with less benefits and higher prices. Insurers share FAIR Plan profits but are responsible if claims exceed premiums.
The companies’ escalating refusals to sell or renew coverage — allegedly because of the risk of wildfire — have driven many Californians into the FAIR Plan. The proposal would require all homeowners in the state to pay a surcharge to cover any unexpected FAIR Plan losses. In other words, California consumers would end up insuring insurance companies against wildfire losses.
Yet, this deal will not placate the industry, no matter what insurers say. In Florida, insurance companies are already permitted to do everything that the bailout would let them get away with here. Homeowner premiums are two to three times higher there than in California, and insurance companies are fleeing the state anyhow.
Indeed, nothing in the industry bailout requires an insurance company to resume selling policies to anyone who wants to buy one.
The insurance industry has taken the state hostage; our representatives should not make Californians pay the ransom. An end-of-session legislative coup that deprives the public of the opportunity to carefully vet a self-serving proposal of this magnitude profoundly disrespects the voters, especially because our Constitution gives voters the last word in setting insurance policy.
This will end badly, as did the Legislature’s deregulation of electricity rates in 1996 — which resulted in phony power shortages and $70 billion in additional charges on our electricity bills.
State lawmakers should instead focus on the real threat — climate change — and pursue solutions that would benefit everyone, not just the industry.
Priority one: Speed up funding for proven programs that will enable all homeowners, businesses and communities in California to prevent or limit damage from wildfires. A community in Florida that was built from the ground up using the latest loss-prevention techniques emerged virtually unscathed from last year’s Hurricane Ian.
Land use policy should not be set by insurance companies or the building industry; future construction in the highest risk areas should be based on objective, real-time assessments of their vulnerability. And the Insurance Commissioner should set a deadline for insurance companies to stop investing in and insuring the fossil fuel industry.
Finally, the insurance industry’s bullying must be stopped. Attorney General Rob Bonta should immediately investigate collusion among insurance companies to manufacture shortages in the marketplace — a violation of antitrust laws.
Over the last 25 years, homeowner insurance companies have made profits in California that are four times greater than the national average. As a condition of doing business in the largest and most lucrative insurance market in the nation, the companies should be required to sell insurance to anyone who has taken reasonable steps to safeguard their home and property against wildfire — and at the fair rates established by Proposition 103.
Harvey Rosenfield authored Proposition 103, the insurance reform measure passed by voters in 1988.
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