Gov. Gavin Newsom on May 28 released a bill that could help quicken insurance rate reviews in California, something insurers in the state have criticized.
After several years of major wildfires and flooding, California insurers say they have been prevented from adequately raising rates by regulations adopted in 1988 under Proposition 103.
The New York-based Insurance Information Institute said insurers haven’t been able to charge adequate premiums since Proposition 103 established what’s known as the intervenor process, in which state regulators review all proposed rate increases of 7 percent or greater, in some cases taking years.
Under the governor’s bill, rate review requests could be subject to a quicker timeline. The bill would revise the insurance code and give the Insurance Department an initial 60 days to review requests for rate increases by insurers, with options for two 30-day extensions. Currently the department has 60 days to review rate filings without a hearing and 180 days with a hearing.
The bill also adds a requirement that the department provide an estimated rate based on the insurer’s requested increase, which could be accepted and adopted by insurance companies so long as no objections are received by a consumer or consumer representative.
Department of Insurance Commissioner Ricardo Lara commended the governor’s proposed legislation in a May 30 press release, which he said would add to his own Sustainable Insurance Strategy aimed to address the state’s insurance crisis.
“I appreciate Gov. Newsom’s strong backing of my strategy and his continued commitment to make sure we have the support and resources we need to implement effective, lasting reform,” Mr. Lara said.
He noted that the changes proposed under the governor’s bill wouldn’t prevent the department from conducting thorough reviews of rate filings but would help address the state’s current system that is “suffering from decades of deferral and delay.”
Janet Ruiz, director of communications for the Insurance Information Institute, told The Epoch Times the institute supports the proposed changes, which could streamline the approval process.
“These changes will allow insurers to increase availability of insurance to consumers in California and to stabilize the market. Rates that reflect the risks, costs to rebuild and loss expenses protect consumers when it’s time to pay claims,” she said in an emailed statement.
According to a September 2023 report by the Insurance Information Institute, California insurers failed to collect more from their policyholders’ premiums than what they paid in claims between 2013 and 2022, with $1.08 spent for every $1 received.
According to the institute’s report, recent disaster-prone years have led to losses, with fires in 2017 and 2018 costing insurers more than $2 for every $1 they took in.
In 2018, the Camp fire, the deadliest and most destructive wildfire in state history, destroyed more than 18,000 buildings in Northern California’s Butte County.
In March, Mr. Lara announced new rules that would allow insurers to use forward-thinking models to set rates, allowing for the greater frequency of natural disasters in recent years, where previously they could base rates only on climate data from the previous 20 years.
He also revealed in September 2023 a plan to require insurers to write at least 85 percent of their policies in high-wildfire-risk communities by the end of 2024, under what’s known as the California Sustainable Insurance Strategy meant to expand options for homeowners.
The strategy also offers discounts to homeowners who have mitigated wildfire risks and expands Fair Plan commercial coverage to $20 million per building, helping condominiums and homeowners associations.
Since May 2023, the state’s largest insurer of property and casualty insurance, State Farm, ceased accepting new business, personal property, and casualty insurance policies, according to a statement from the company issued at the time.
Others such as Allstate, Farmers Insurance, The Hartford, and more have announced similar moves beginning last year, leaving residents with the state’s last resort insurance, the California Fair Plan, which provides basic coverage when other insurers aren’t available but charges a high premium.
The Fair Plan has taken on a record number of new policies amid insurers not renewing policies in the state, with 15,000 new policies added in February alone.
Fair Plan President Victoria Roach told lawmakers at an April 25 Assembly Insurance Committee meeting that California homeowners insured under the plan can expect a substantial increase in rates after a flood of new policies issued.
“In order to bring our rates up to the right level, there’s going to be a substantial increase. That’s as much as I can share,” she said during the meeting.
In 2021, the Fair Plan had about 3 percent of all policies in the state, amounting to about 268,000 policies, according to the California Department of Insurance. Now, the plan covers about 373,000 policies, making it one of the largest insurers in the state, officials said at a March committee meeting.
