Are California legislators considering a secret deal to prevent major insurance companies from bailing out homeowners? – Chico Enterprise Record

Firefighters work to protect homes from the CZU August Lightning Complex fire in Boulder Creek on August 21, 2020. (Dai Sugano/Staff Archives)

In a state burned by a series of devastating wildfires, Californians have seen their home insurance costs skyrocket and coverage options evaporate — if they can find a company to issue a policy at all.

Now, consumer advocates say lawmakers and the state insurance commissioner are secretly working on a deal to liberalize more coverage in the Golden State — but at the cost of caving in to demands from insurers to ease regulations and allow them to charge higher rates.

Harvey Rosenfeld, founder of Consumer Watchdog, said: “This would constitute the largest bailout of the insurance industry in recent history, precipitated without public deliberation placing such a burden on policyholders’ claims.”

In a state with the nation’s strongest consumer protection rates, major insurers like Allstate, State Farm and Farmers have held back on new policies, leaving many homeowners scrambling for coverage and digging much deeper to pay for it.

Among other issues, the companies say, pricing models — which are based on actual past losses rather than on projections of future climate-induced disasters — are not keeping pace with the rising costs of repairing or replacing homes.

But Rosenfeld said lawmakers are trying to muster a behind-the-scenes deal for insurance companies through the legislature with minimal public review as it expires in the next two weeks, and have even caught a longtime industry lobbyist flaunting it to a flight attendant on a flight. to the Capitol last week.

Insurance industry representatives have remained silent about the alleged deals, which were outlined in a Politico report dated August 21. And this report quoted Senator Susan Rubio, the Democratic representative from Baldwin Park who chairs the Senate Insurance Committee, as saying: “Everything is on the table, and I don’t rule out doing something.” Rubio and her staff did not respond to repeated inquiries from the Bay Area News Group.

The office of the Insurance Commissioner, Ricardo Lara, said the state’s insurance market is “challenged” by wildfire and storm losses, inflation, prolonged rebuilding, supply chain disruptions and rising material costs, while “vested interests on all sides” defend “a system It’s clearly not working.”

“There is no quick fix,” said Michael Soler, a spokesman for the commissioner. “We will continue to move on regulatory changes aimed at addressing the issues we have seen.”

The commissioner’s office did not comment on any possible legislative deal in the pipeline, but Soler said that “if necessary,” Lara would follow “legislative procedures.”

Rosenfeld, author of Voter Revolution Proposition 103 of 1988 that cut insurance rates by 20% and required the elected insurance commissioner’s approval to increase rates, smells like rats. He says insurers, which have been seeking Proposition 103 for decades, are limiting the new coverage to pressure consumers and lawmakers to ease regulations, which he said will spur higher rates while making it difficult to assess their needs.

Rosenfeld said it wouldn’t be the first time. He points to then-Attorney General John Van de Kamp’s 1991 antitrust investigation which found that “the simultaneous withdrawal of dozens of insurance companies from California after passage of Proposition 103 was the result of collusion among the insurers.”

“The insurance industries have turned guns on Californians, and the threat is if we don’t let them charge what they want and do whatever they want in the state, they’re going to leave the state altogether,” Rosenfeld said. “There are some people in Sacramento who think the public should pay the ransom.”

California isn’t the only state grappling with home insurance issues. Hurricane-stricken Florida became the poster state for the crashing insurance market.

Insurers have been vocal about what they see as California’s problem. According to the Insurance Information Institute, an industry information association in New York, acreage burned by wildfires has increased in California over the past decade, more people are living in fire-risk areas, and higher costs of repairing or replacing damaged homes have increased insurance losses.

But the institute says California regulations prevent insurers from pricing those increased risks into insurance policies. These rules require insurers to base interest rates on historical losses rather than using predictive computer weather models. They also prevent insurers from passing higher reinsurance costs onto consumers—the insurance for insurers—they buy to help them absorb large losses. The bureaucratic approval process slows and constrains the size of interest rate increases so that they do not keep pace with the increased risks.

“Addressing these California-specific limitations on how insurance companies operate could go a long way toward preventing a Florida or Louisiana-style insurance crisis,” the institute said.

Reportedly, the rumored deal being discussed at the Capitol would do just that.

Rosenfeld says California regulations have kept interest rates in check, about 5% lower than the US average for a standard policy, at $1,241 annually in 2020 compared to $1,311 nationally, while a similar rate in Florida $2,165. He says consumers should be wary of any deal to overturn the regulations, arguing that it likely wouldn’t require insurers to start writing new policies in the state. He notes that insurance companies were leaving the Florida market even though they could do all the things there that they couldn’t do in California.

Caught in the middle are people like Boulder Creek’s Anita Stoddart. Her mobile home sustained some smoke damage in the 2020 CZU Lightning Complex wildfire. In June, her insurance company sent notice that her $700-a-year policy would not be renewed. That has forced her to turn to the FAIR plan as a last resort and minimum coverage — which just won state approval for a 15.7% rate increase starting in December — and a supplemental policy that will cost her $1,200 a year.

“I know they consider us all to be very dangerous, but it’s gotten to where almost the entire country is very dangerous,” Stoddart said, referring to the recent disastrous fires in Hawaii and Hurricane Adalia that battered Florida and other Southeast states. “If they want to raise prices, there is no guarantee that they will insure you anyway.”

“I understand that they can’t pay more than they take,” Stoddart added. “But something has to be done, because people have to have homes, and you have to have insurance if you have a mortgage. I don’t know what the solution is.”

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *