Newsom Vows to Stabilize California’s Insurance Markets

Newsom Vows to Stabilize California’s Insurance Markets

California Gov. Gavin Newsom meets with delegates from Norway in Larkspur, Calif., on April 17, 2024. (Travis Gillmore/The Epoch Times)

Travis Gillmore

Travis Gillmore

5/13/2024

Updated: 5/28/2024

SACRAMENTO—California Gov. Gavin Newsom is planning to introduce language in the 2024–25 fiscal year budget trailer bill to address the state’s insurance crisis, he said during his May 10 press conference announcing his revised budget plan.
Such action follows through on an executive order signed by the governor in September 2023 that urged insurance commissioner Ricardo Lara to take prompt action to strengthen and stabilize the insurance markets affecting home and commercial property owners.
“This is real, and it’s being felt across the United States,” Mr. Newsom said. “We need to get ahead of it ... and we’re going to do some trailer bill language with this budget because the most important thing we need to do now—in addition to all the other things we laid out in the executive order and all the other things the insurance commissioner has already announced he wants to do—[is] we’ve got to move this.”
Millions of property owners in California are facing an insurance availability problem that has compounded in recent years, as dozens of insurers have stopped writing policies for some properties or left the state entirely.
Many have been forced onto the FAIR plan—meant to be an insurer of last resort—with significantly higher premiums for less coverage than they had with traditional insurers.
The FAIR plan received about 50,000 calls in January, and approximately 900 applications per day were considered in 2023, according to Michael Martinez, chief deputy commissioner for the insurance department.
The plan grew by 350,000 policies in 2023, a sharp increase from the 125,000 written in 2018.
Property owners across California told The Epoch Times that they experienced “shockingly high” rate increases after losing their prior coverage and having to join the plan.
Victoria Roach, president of the FAIR plan, recently told the State Assembly’s Insurance Committee that a record number of applications and inquiries are inundating the plan and that rates will need to be raised to remain solvent.
“We’re mindful of the challenge and burdens which have been placed on our FAIR plan,” Mr. Newsom said. “And we’re deeply mindful of the day-to-day travails of trying to reconcile these screaming headlines and the reality when you get a notice that your insurer may not want to reinsure or extend that insurance, or you buy a new home, and you can’t even get that insurance.”
While the insurance commissioner has said that he wishes to see reforms complete by December 2024, the governor said more needs to be done sooner.
“We can’t wait until December. ... I don’t think we have that much time, and we’ve got to move this ... and we’ve got to do more,” Mr. Newsom said. “It should not take this long for emergency [regulations].”
He said his goal is to speed up the process and have reviews completed within 60 days of the bill’s passage.
“We need to get this rate ruling process done, and that’s why we want to expedite it over a 60-day period,” Mr. Newsom said. “We need to stabilize this market; we need to send the right signals; we need to move.”
Insurers have fled the state in record numbers, citing a need to increase rates and to recoup costs related to reinsurance—coverage that insurers purchase.
Seven of the top 12 insurers—responsible for writing about 85 percent of the insurance coverage in California—left in 2023, according to the state’s Department of Insurance.
One lawmaker said the issue is contributing to the state’s housing crisis.
“Our housing stock is jeopardized by a lack of insurance,” state Sen. Susan Rubio, chair of the Senate’s Insurance Committee, said during a hearing in February. “We’re at the brink of really falling apart.”
Insurance availability and affordability issues are hampering the housing market and preventing some families from selling or purchasing homes.
Businesses, condominiums, apartments, and single-family homes are all affected by the crisis, with some insurance brokers saying they dread communicating with clients because the market is “broken.”
Problems began in earnest after wildfires swept through communities across the state beginning in 2017, with thousands of homes destroyed and billions of dollars in damage affecting property owners and insurers.
Regulators say that while they are looking to expedite the process, their hands are tied because of Proposition 103—passed by voters in 1988—which requires pre-approval before rate increases can be passed on to consumers.
“My Sustainable Insurance Strategy is intended to address decades-long neglected issues,” Mr. Lara said in a March statement announcing the second phase of his proposal to change state regulations. “Under outdated rules, the growth of climate-driven mega fires has supercharged insurance costs for many Californians while making insurance harder to find.”
He said that by updating the approval process and allowing insurance companies to use forward-looking risk assessment models, the market could be stabilized to the benefit of insurers and Californians.
“We can no longer look solely to the past as a guide to the future,” Mr. Lara said. “My strategy will help modernize our marketplace, restoring options for consumers while safeguarding the independent, transparent review of rate filings by Department of Insurance experts, which is a bedrock principle of California law.”
The insurance commissioner did not respond to requests for comment by press time regarding the governor’s new plan.
The trailer bill language is expected to be released in the coming weeks, with Mr. Newsom looking to sign the measure into law to help bring about solutions this summer.
As an add-on to the budget bill, the deadline for its passage by the Legislature is June 15, and it must be approved by the governor by July 1.
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Travis Gillmore

Travis Gillmore

Author

Travis Gillmore is an avid reader and journalism connoisseur based in California covering finance, politics, the State Capitol, and breaking news for The Epoch Times.

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