New Agreement Aims to Stabilize California’s Home Insurance Market
California Insurance Commissioner Ricardo Lara has announced a breakthrough deal with the insurance industry to boost coverage in the state’s high-risk fire zones. The agreement, which comes after failed negotiations in Sacramento over a legislative response to the home insurance market, involves insurers returning to the fire-prone areas in exchange for concessions that streamline the process of obtaining higher rate increases.
Hope for Increased Coverage Sooner
While the changes are set to take effect by the end of 2024, the goal is for insurers to start offering new homeowners policies in California earlier. Several leading insurers, including State Farm, USAA, and Allstate, have pending requests for rate increases, ranging from 28.1% to 39.6%. If approved, these companies would be permitted to raise their total premiums in the state accordingly, with the rate increase distributed unevenly among homeowners.
A Response to Market Withdrawal
Since the devastating fires of 2017 and 2018, home insurers have been gradually pulling out of the most fire-prone parts of California. As a result, homeowners and businesses in these areas have turned to California’s FAIR plan, a higher-cost insurance provider that offers limited coverage. The number of FAIR plan customers has more than doubled since 2018, accounting for 3% of the total state market.
Threshold for Insurer Return
Under the new agreement, insurers have committed to covering fire risk zones up to a certain threshold equivalent to 85% of their statewide market share. This means that major insurers will combine to cover 85% of customers in these areas, with the FAIR plan and other higher-cost insurers responsible for the remaining 15%. For instance, State Farm, covering over 21% of the state market, would be required to insure 18% of houses in fire zones.
Concessions in Exchange for Coverage
To encourage insurers’ return to high-risk areas, Commissioner Lara has offered to relax certain insurance regulations. The Personal Insurance Federation of California, an insurance trade association, has approved the deal, stating that the current system is not functioning efficiently and that the agreement is an important step toward stabilizing California’s insurance market.
Streamlining the Rate Approval Process
Commissioner Lara intends to expedite the overall process by accelerating rate approvals. The new state budget also includes funds for hiring additional staff to handle filings promptly. The Department of Insurance has recently published data on watchdog interventions in rate filings, enhancing transparency and facilitating increased consumer advocacy participation.
Consumer Advocates’ Mixed Reactions
Consumer advocates have expressed mixed opinions regarding the agreement. Some, like Amy Bach, executive director of United Policyholders, appreciate the deal for addressing the reduced access to insurance that many residents and business owners have experienced. However, Consumer Watchdog fundamentally disagrees with Commissioner Lara’s approach, believing that catastrophic models and allowing insurers to include reinsurance costs may lead to significantly higher insurance bills for consumers.
Transparency and the Future
Consumer Watchdog has long called for increased transparency within the agency. While they welcome the new transparency requirements, they emphasize the importance of including communications between insurance companies and the insurance commissioner and staff in discussions about rate increases. Additionally, there are concerns about the lack of a written agreement with the insurance companies and whether they will follow through on their commitments.
In conclusion, the deal between Commissioner Lara and insurers aims to stabilize California’s home insurance market by encouraging coverage in high-risk fire zones. While the agreement has received support from some consumer advocates, others remain skeptical of the potential consequences for policyholders.