As Gov. Gavin Newsom and state lawmakers grapple with the state’s massive budget shortfall this year, another crisis that could have a far greater impact on California families will arise just blocks from the Capitol.
California Insurance Commissioner Ricardo Lara will try to discourage companies that provide insurance coverage to millions of homeowners from fleeing the state. Citing huge losses from catastrophic wildfires and the potential for more devastation to come, the largest insurers, such as State Farm and Farmers, have already cut back on new policies and renewals.
As a result, many homeowners in fire-prone areas were forced to sign up for the state’s latest insurance plan, called FAIR, which offers discounted coverage with high premiums, to protect themselves and stay in compliance with their mortgages.
The industry wants to include actuarial projections of future losses and reinsurance costs in its insurance premiums. Neither employee is now permitted under regulations approved by voters more than three decades ago under a ballot measure that also made the insurance commissioner an elected official.
As the list of insurers that reduced their exposure in California last year mounted, the Legislature briefly tried to come up with a revised regulatory process that would incentivize them to continue writing policies, but it was postponed in September without any action.
Newsom took the crisis to Lara and quickly laid out in general terms new rules that would allow estimates of future losses to be incorporated into premium claims and hinted that reinsurance might be approved for inclusion. In return, Lara will require insurers to keep at least 85% of their market in fire-prone areas.
His announcement set off what could be a year of hearings and other processes to write new rules that would, in effect, amend much of the 1988 ballot measure that created California’s highly regulated insurance system and strictly limits what factors can be included in the rate. Requests.
This has exacerbated an ongoing feud between Lara and the CPS, the organization that sponsored the 1988 ballot measure and has benefited heavily from “intervention fees” to participate in high-price measures since then. The consumer watchdog has been highly critical of Lara throughout his tenure, charging that his proposed systemic changes would be a sell-out to the insurance industry.
“He basically gave up on the industry,” Jimmy Court, the group’s president, said of Lara at one point. “There’s not a lot of return to the consumer here.”
In response, Lara cited its duty to maintain a viable insurance market and accused the consumer watchdog of protecting its financial interests.
Lara responded to the accusations: “A single entity is involved in approximately 75% of all interventions to approve prices, and benefits materially from a process aimed at wider public participation,” adding: “It is easy to drop bombs and make flowery statements from the outside.” “Entrenched interest groups benefit no one.”
Until the crisis hit, California’s average homeowners insurance premiums were slightly lower than the national average.
There is no doubt that if LARA makes significant changes to insurance regulation, homeowners’ insurance premiums will increase. In fact, last month he approved a 20% premium increase for State Farm, which has more than a quarter of the state’s market, and also announced a moratorium on new policies.
It’s a trade-off, affecting not only current homeowners, but those who aspire to ownership and therefore must obtain insurance to obtain a mortgage. Furthermore, the availability of insurance to their potential customers influences developers who build and sell new homes.
As with the budget crisis, politicians cannot undo the unwritten laws of the economy. In the end, there is no free lunch.
Dan Walters has been a journalist for nearly 60 years, all but a few of those years spent working for California newspapers. He has written more than 9,000 columns about California and its politics and his column has appeared in numerous other California newspapers. He writes for CalMatters.org, a nonpartisan, nonprofit media project explaining California politics and policy.
