CONTRA COSTA COUNTY, CA (June 9, 2024) — Insurance companies could mimic State Farm’s new offer of providing wraparound choices for policy holders who sign up for California’s FAIR Plan fire insurance policy, state Insurance Commissioner Ricardo Lara said in an interview on the podcast, “Table Talk with Senator Steve Glazer.”
Lara also said a major contributor to the insurance crisis has been the reluctance of insurance companies to be honest with their rate requests because of their concerns about delays in the intervenor process. Under Proposition 103, the intervenor process allows outsiders to challenge proposed insurance rates and get reimbursed for their costs.
Lara told Senator Glazer he has encouraged other insurers to offer supplemental policies to protect homeowners under threat of losing their coverage. It would allow policy holders to keep broader homeowner protection beyond the limited fire protection the FAIR plan provides. The FAIR plan does not cover water damage, leaks or other typical property damage. State Farm in California recently announced it will continue to provide insurance coverage to policy holders as long as it doesn’t include fire protection.
“Yes, we’re talking to other carriers,” Lara said. “But, the non-renewals, as we’ve seen, have been the big carriers in the state, so I’m crossing my fingers and hope we don’t see any more real big bulk of non-renewals.”
Fire danger
In March, State Farm announced it would not renew approximately 30,000 homeowner policies across the state because of the risk of wildfires and fires after earthquakes. The California FAIR Plan is a state-created but privately run insurer of last resort which covers damage from fire, lightning, internal explosions and smoke. Other types of coverage, such as water damage, liability and theft, require a secondary policy.
The FAIR Plan is now covering more and more homeowners, even those in lower risk areas, because of widespread policy cancellations. Daily applications for the FAIR Plan have fluctuated around 1,000 but rose to 1,200 last week, according to FAIR Plan President Victoria Roach.
From September 2019 to March 2024, the total number of FAIR Plan policies increased by 137% from 154,494 to 365,694 as many insurers canceled policies in areas with high fire risk. In that same time, the FAIR Plan’s total exposure has risen to $340 billion from $112.8 billion, according to the FAIR Plan’s website.
Questions
In a 40-minute interview with Senator Glazer, Lara answered a wide range of questions on the insurance crisis from five mayors, other civic leaders and residents from Contra Costa and Alameda counties. Mayors Darlene Gee (Orinda), Karen Stepper (Danville), Dave Hudson (San Ramon), Anissa Williams (Oakley) and Karla Brown (Pleasanton) all called in with questions.
On streamlining the intervenor process: “Because of the intervenor process, companies are actually coming in and underpricing the amount that they need, which also contributes to the problem; insurance companies are not being truthful to what is the actual rate that they need because they’re afraid of getting stuck in this intervenor process that then gets elongated and takes forever to approve that rate. … We’ve been vocal about being honest with us and tell us the rate you need, let us review that and if it’s justified it’ll be approved. We’ve been working with them to build some trust.”
On Governor Gavin Newsom’s recent announcement to take action in the state budget to deal with how long it takes to review rates: “We worked very closely with the governor, we coordinated with him, helped draft the language, which is essentially one piece of a bigger pie of these reforms we’re working on that we felt we can get done in the Legislature and not have it get bogged down through the regulatory process and still be able to defend it when we get sued. We have to make sure these regulations are tight… the last thing I want is to lose these regulations in court over process. I’m willing to debate in court over the meat and substance of these regulations and why they’re needed but I don’t want to lose over the process. That’s why it’s taking us a little longer.”
Wraparound choices
On working with State Farm on the wraparound choices for Fair Plan policy holders: “Creating options for homeowners has been really a top priority for us during this crisis. A comprehensive policy is always the best choice for homeowners. … This will help their policy holders stay covered and (be able to) keep access to multi policy discounts that State Farm may offer… I know this acutely affects a lot of your constituents so we’ve been on the phone with State Farm trying to be creative.”
On insurance companies getting rate increase approvals to help stabilize the market: “Over the last couple months, top 10 insurance companies in the state have gotten rate increases, so if the rate is merited, it’s fair and it’s non-discriminatory, we’re trying to move these as quickly as possible given the crisis we’re in.”
On why some people are being renewed and others aren’t. “It all depends on the amount of risk of an insurance company’s portfolio. We have to remind consumers that insurance companies are businesses. When you’re signing a contract with an insurance company, you’re entering into a business contract. We cannot force them. We’ve lost in court already trying to force them to underwrite in certain communities.”
Finding a carrier
On how to find a carrier who will underwrite a new policy: “One thing that is critical is we also look at small to medium size insurance companies who continue to write and who are expanding their profile in California. We don’t necessarily have to go to the big 10 companies. That’s something the department can help consumers … we can help coordinate some of the relationships with some of the smaller to midsize companies.”
On how the rocky insurance market is affecting home sales: “We know this insurance crisis is having a devastating effect on our real estate market because it is creating a domino effect. If you can’t find insurance for your home you can’t sell your home. Which means local governments are not going to have the resources to hire the fire fighters to protect the home.”
Mitigating fire risks
To the common complaint that neighbors aren’t helping mitigate fire risks: “I’ve heard this time and time again: ‘I’ve done all the mitigation, invested thousands of dollars making my home fire safe but my neighbor has done absolutely nothing.’ This is where enforcement at the local level is critical … where (community leaders) understand that we’re putting the availability of insurance in peril if we’re not looking at this through a communal lens.”
On reforms to the rate setting models and processing time: “We are on our way to enacting the state’s largest insurance reforms in 30 years, since the passage of Prop. 103 in 1988. …We are facing the accumulated stress of decades of long need reforms and neglected decisions … we are compressing decades of deferral and delay into a one-year timeline of action. We’ve been operating essentially with 20th Century regulations for what we know is a 21st Century problem. That cannot continue.”
Listen to this and other episodes of Table Talk with Senator Steve Glazer by clicking here or wherever you listen to podcasts.
Clinton Mora is a reporter for Trending Insurance News. He has previously worked for the Forbes. As a contributor to Trending Insurance News, Clinton covers emerging a wide range of property and casualty insurance related stories.