Commissioner Lara Testifies on Progress Toward Stabilizing Insurance Market

Commissioner Lara Testifies on Progress Toward Stabilizing Insurance Market

May 15, 2024 — Today Insurance Commissioner Ricardo Lara informed members of the Assembly Insurance Committee about significant progress toward California’s largest insurance reform in 30 years. In prepared remarks, he detailed next steps to implement his comprehensive Sustainable Insurance Strategy in concert with support from the Governor and Legislature through the budget process.

"I stand with our Governor’s remarks at his news conference — that time is of the essence. I appreciate his strong support of my strategy and his continued commitment to ensure my Department has the support and resources we need to implement a strong, lasting reform."

The following is an excerpt of Commissioner Lara’s remarks:

"Since last September, my Department has been working diligently on ambitious reforms designed to stabilize our state’s insurance marketplace. I am thankful for my staff and their incredible commitment to this bold, comprehensive strategy that will modernize our state’s insurance market, especially with the growing threat of climate change."

"I want to address the questions everyone always asks up front: When will our work be complete? And when will Californians start to see the benefits?"

"My answer is: We will finish our regulatory work this year, and Californians are already seeing benefits."

"We need to be thorough, thoughtful, and deliberate. I do not want another insurance commissioner to be back in front of you in 5 or 10 years because these regulations could not be implemented -- and do not meet the mandate of Proposition 103."

PROPOSITION 103

"The purpose of Prop. 103 is four-fold: to protect consumers from arbitrary insurance rates and practices, to encourage a competitive insurance marketplace, to provide for an accountable Insurance Commissioner, and to keep insurance fair, available, and affordable for all Californians."

"Under Prop. 103, insurance companies are not required to write policies. That was upheld in the Garamendi precedent. Underwriting mandates will not prevent insurance companies from further retreating."

"Let me put our work into perspective: We are creating entirely new laws and new procedures from the ground up, and we need to make sure we have all those in place. Our entire team has been continuously engaged and working hard throughout this insurance crisis -- and Californians are already seeing results. Here are some notable updates since we last met:

OUTCOMES

"Just yesterday, Farmers announced that it will reopen several of its commercial coverage lines, including for homeowners associations, apartments, and condominiums. Farmers is California’s largest domiciled insurance company and second largest homeowners writer."

"This decision is a direct result of my Department’s approval of its commercial rate filing. My Department has also approved three of Farmers’ homeowners rate filings in the last year as the company continues to write homeowners policies across the state."

"Last week, we heard that Mercury Insurance Company is working with Tokio Marine to pick up the bulk of its personal homeowners insurance business. Mercury is another California-based company that has not stopped writing new homeowners policies. And Tokio Marine continues to write commercial coverage."

"My staff just approved CSAA Insurance Exchange’s homeowners insurance rate filing last Friday. This ensures that CSAA can continue to write homeowners policies under the Triple-A Northern California brand. Earlier this year, my Department approved a significant homeowners rate filing for Triple-A South, so it can continue to write homeowners policies throughout Southern California."

"And during my Department’s catastrophe modeling workshop last month, an Allstate executive testified that it will end its pause on new homeowners business in California and begin writing in virtually every corner of the state when our strategy is implemented."

"In fact, every Top 10 homeowners insurance company in California has had a justified rate increase in the past five months according to the rules under Prop. 103. This underscores the tremendous urgency that my Department is showing during this crisis."

"These are signs of progress. However, we are not going to declare success prematurely, or be reactive to every insurance announcement or headline. We all are living in a time of uncertainty. I know that this is frustrating for anyone who is trying to buy or sell a home, or worried about whether they can even afford the insurance coverage they need as we face another fire season. We are already monitoring the current fire in San Bernardino County. That is the reality of our situation."

"You’ve heard this before but it bears repeating: We are on our way to enacting the state’s largest insurance reform in 30 years since the passage of Prop. 103 in 1988. Prop. 103 was less than two pages of text. It took years of regulatory work, dozens of rulemakings, and even scores of litigation to make that landmark initiative a reality."

"Now we are facing the accumulated stress of decades of long-needed reforms and neglected decisions. For years, insurance companies submitted rate requests less than what they need largely because of the stagnant intervenor process. We are compressing decades of this deferral and delay into a one-year timeline of action. We have been surviving with 20th century regulations for 21st century problems. That cannot continue."

"There are others who are still trying to figure out if there is even an insurance crisis or just denying that there is an emergency to begin with. News flash: This is what an insurance crisis looks like."

MOVING FORWARD

Looking ahead, my Department is finalizing new regulations to allow the use of forward-looking catastrophe models in rate filings. This will help increase insurance availability in wildfire distressed areas and reduce reliance on the FAIR Plan, which has become a large percentage of policies in rural areas. In July, we plan to introduce proposed regulation text to allow homeowners and commercial insurance companies to incorporate the net cost of reinsurance in their rate filings. Reinsurance is a critical component of how insurance companies manage their risk, and allowing these costs to be included in rate filings will support greater insurance availability.

We are also working on modernizing the FAIR Plan, which has been neglected for many years. By July, I plan to amend the FAIR Plan’s Plan of Operation to increase coverage limits for larger homeowners associations, condo associations, farms, and other businesses, while ensuring the financial sustainability of the Plan. This modernization effort includes improving customer service responsiveness and ensuring that the FAIR Plan can fulfill its statutory role of providing coverage to all who need it.

In February, my Department published a “complete rate application” regulation to create clarity for all participants in the rate review process. This regulation is a critical part of reducing unnecessary delays and ensuring that rate filings are reviewed more quickly.

Last week, the Governor announced a new legislative proposal to expedite my Department’s insurance rate filing process. This proposal aims to provide more resources for thorough review within the current 60-day timeline prescribed under Proposition 103, with provisions for 30-day extensions when necessary. This proposal will help ensure that insurance companies provide complete information upfront, allowing for timely and informed decisions on rate filings.

To increase public participation and transparency in the Proposition 103 intervenor process, my Department launched a new webpage that explains how the process works and provides access to petitions filed by intervenors, as well as the Department’s responses and compensation awarded.