SACRAMENTO, Calif. — The California Department of Insurance took questions this week from frustrated homeowners, as hundreds of thousands of people throughout the state face increasingly unaffordable and unavailable insurance.
In a Virtual Insurance Town Hall Tuesday, California Insurance Commissioner Ricardo Lara answered pre-submitted questions.
“One of the main questions are, ‘Why are insurance companies allowed to cherry-pick the ZIP codes they want to insure? Aren’t they supposed to assess the risk and price it that way?’” Department of Insurance (CDI) analyst Mary Beth Bykowsky read to Commissioner Lara.
“It’s always important to remind folks that — unlike public utilities — insurance companies can limit where they write policies,” Lara said. “Even with rate increases, some companies are not writing policies, making the FAIR Plan the only option. Again, this is where our outdated regulations do not address growing climate threats.”
Twelve insurance companies cover 85% of all California homeowners policies, he said. That is until the past couple years, when seven of them announced they are limiting or pausing business in California.
“We need to get back to a point where insurance companies are competing for your business to drive down that cost,” Lara said. “California, I must say, still has lower rates than Texas and Florida. We are right in the middle, nationally, given all the risk and fires and floods, earthquakes that we’ve suffered through the last couple years. But risk continues to increase to the point where insurance is becoming much more unaffordable for some and we recognize that. It’s really unacceptable, which is why we are working on really short-term and long-term solutions to help consumers keep and get the coverage that they need.”
He pointed out while CDI doesn’t have the “the authority to force insurance companies to write policies in a particular area of the state, we have reached this historic agreement with insurance companies to write coverage for properties in wildfire-risk areas that they currently do not insure.”
Lara is talking about one of several reforms he's proposing as part of his Sustainable Insurance Strategy, announced last September, with a goal of going into effect by the end of 2024.
Under current state law, insurance companies must get any rate increase approved by the Department of Insurance. In justifying a rate hike, they’re only allowed to use the past 20 years of historical data.
Insurers want CDI to let them use forward-looking, so-called ‘catastrophe’ modeling. Lara agrees.
“California is one of the few states that does not allow for the use of catastrophic modeling,” Lara said. “It’s ridiculous to me that we haven’t done this. I mean, we’re California. We should be using forward-thinking technology to help us assess the risk.”
In a proposed regulation he recently unveiled, Lara said an insurer will be allowed to use catastrophe modeling only if they work to increase the number of policies they write in wildfire-prone areas, which his department defined by specific counties and ZIP codes in a release last month.
“They’re going to commit to come back and write in these communities. It’s really a win-win for everybody because at the end of the day we also have to secure our insurance market in California,” he said.
Consumer advocacy groups worry the requirement to write in wildfire-prone areas isn’t robust enough and in the meantime, catastrophe modeling will allow insurers to justify higher rates, as many homeowners are already struggling with the growing cost of their premium.
Insurance Expert Karl Susman spoke with ABC10 about the current homeowners insurance market.
“It's a horrible situation right now. There's no way to put it any other way,” he said.
He said Lara’s proposed regulations will move the market in the right direction, but they’re not yet finalized. As such, consumers might not see improvement in affordability or availability until next year.
“We're going to have to be a little more patient. I think, realistically, we should expect to see companies begin to re-enter the market, getting their toes a little bit wet, maybe in the first quarter,” Susman said. “I'm just a lot more comfortable seeing the momentum that we're going in the right direction, that for someone that's being non-renewed in 12 months from now, I feel like they'll be in a situation where they have more options to pick from other than going to the FAIR plan.”
A representative of the California FAIR Plan, broker liaison Phil Irwin, also spoke in Tuesday’s virtual town hall meeting.
He said if someone is on the FAIR Plan and finds a policy that’s more affordable, there’s no penalty for switching out of your FAIR Plan policy early. Experts said just make sure there’s no gap or lapse in coverage.
The virtual town hall is available to watch HERE.
