Insurers' wildfire protection plans take fire from consumer advocate
The next step in the Sustainable Insurance Strategy from California Insurance Commissioner Ricardo Lara in response to insurers dropping coverage because of wildfire risk, is itself under fire from consumer advocates.
Lara stated in his June 12 announcement of the strategy that it will require insurers to account for property owners making wildfire mitigation efforts.
Carmen Balber, executive director of Consumer Watchdog.
Consumer Watchdog
The details of the strategy show that insurers will not be required to charge affordable prices for coverage, may use secret algorithms to set prices and allow double-digit price hikes, according to Carmen Balber, executive director of Los Angeles-based consumer advocacy non-profit Consumer Watchdog.
“This piece of Lara’s plan was supposed to be the one consumer benefit out of all of the moves that he is taking, at the behest of the insurance industry, to relax regulation and allow them to more easily and more speedily increase rates,” she said. “This was supposed to be the one concession to consumers that the commissioner was promising to make insurance companies sell to us again.”
Additionally, Lara emphasized on June 12 that insurers agreeing to sell coverage in distressed areas at 85% of their market share in the rest of California will be allowed to use the secret algorithms.
A closer read of the regulatory strategy details shows, however, that insurers can opt to just increase sales in distressed areas by 5%, according to Balber.
“If you’re an insurance company, [that] has largely abandoned those areas of the state, increasing your sales there by 5% comes nowhere near to this promise of 85% coverage in distressed areas again,” she said.
Another point of contention in Lara’s plan is that insurers get two years to make efforts to increase coverage. “If we get to the two-year point, and an insurance company tells the commissioner, well, we made a good faith effort, but we didn’t meet our commitments, they’re off the hook,” Balber said.
In September 2023, Lara’s office announced its outline for the strategy, based on the results of a negotiation with the insurance industry that had failed to get approval from the California state legislature.
“To paint this as insurers selling coverage again, was a real scam. We learned from the text of the regulation that there is nowhere in the rules that specify insurance companies would be selling comprehensive policies to meet their commitments. This is another place where the text of the regulation does not match what the commissioner is presenting to the public,” Balber said.
“That means literally, we have an entire insurance strategy put forward by the insurance commissioner, that is the insurance industry playbook with zero benefit for consumers. We need the legislature to step in and bring California some real solutions.”
The catastrophe modeling and ratemaking aspects of the Sustainable Insurance Strategy will be the subject of a public hearing hosted by the California Department of Insurance on June 26 from 2:30 to 4:30 pm PT (5:30-7:30 pm ET). Balber expects a mandate will be required to sell insurance to those who follow clearing and protection guidelines.
