Insurance Companies Seek Massive Bailout & Deregulation Scheme In Sacramento, Says Consumer Watchdog
The proposed legislation would relieve insurance companies of responsibility for covering fire claims under the California FAIR Plan, which insurers control, and put it on the backs of all property insurance policyholders as an added surcharge on insurance bills.
It would also allow the companies, in violation of insurance reform Proposition 103, to charge homeowners and renters excessive and unjustified rates, including the unregulated costs of reinsurance, and use black box algorithms to set insurance premiums – pushing homeowners' rates even higher.
Nothing in the proposal requires insurance companies to insure new homes as a condition of a bailout.
The push to pass a bailout during the final three weeks of session to avoid the scrutiny and vetting of a public debate is especially outrageous, said Consumer Watchdog, because proposals that would protect consumers have not been considered. For example, two bills that would have required insurance companies to sell policies to all homeowners who harden their homes against wildfires were denied hearings by the legislature's insurance committees (AB 2367 Gonzalez in 2020 and SB 672 McGuire in 2023).
"This would constitute the biggest insurance industry bailout in modern history, rushed through without the public deliberation that placing a burden of this magnitude on policyholders demands. The legislature and governor should reject this eleventh-hour plan. Insurance companies are trying to exploit a crisis to get deregulation they have sought for 35 years and a bailout of their current responsibilities to
Proposed FAIR Plan Bailout Will Exacerbate Problems in the
Insurers are threatening lawmakers with more pullouts from the home insurance market if they do not get their way, but a bailout would make things worse, not better, said Consumer Watchdog. The industry proposal would create adverse selection in the FAIR Plan,
More rational proposals would limit the insurance companies' exposure under the FAIR Plan without putting the burden on policyholders. They include a commission to determine appropriate land use policy to address new construction in the highest risk wildfire zones, an increase in the size of policy limits for hardened projects, and a guarantee that all policyholders who harden their homes can buy insurance. These policies should be debated in the normal legislative process.
Industry Bailout Plan Based on Disastrous Florida Law
This deregulation/bailout scheme mimics
Homeowner premiums are 2 - 3 times higher in
Thanks to Proposition 103's protections, the average premium for an "all-risk" (HO-3) home insurance policy in
Average Premium for All |
Average Premium for |
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|
|
|
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|
Countrywide |
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Source:
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Regular Market |
FAIR Plan |
Regular Market |
Citizens |
97 % |
3 % |
83 % |
17 % |
If FAIR Plan cannot pay claims: |
If Citizens cannot pay claims: |
"Giving the insurance companies everything they wanted did not keep them in
Consumers Should Not be Forced to Bail Out Home Insurance Companies that are More Profitable in
Under Proposition 103, insurance companies have prospered even as the law has kept homeowners rates low. The insurance industry says the 2017-18 fires wiped out two decades of profits in
Contrary to the industry's assertions, insurance companies are also getting the rate increases they need in
The industry's bailout proposal will require the insurance commissioner to charge consumers for unregulated reinsurance costs (illegal today under current regulations). It also requires the commissioner to speed up rate hikes without adequate justification and the full public scrutiny required by Prop 103 that has saved Californians hundreds of billions of dollars since it passed. These changes will dramatically raise home, condo and renters' insurance rates and illegally interfere with the powers the voters gave the Insurance Commissioner. Under the California Constitution, the Legislature is barred from amending Proposition 103 unless the amendment furthers Prop. 103's purposes.
"There are many legitimate ways to address the impact of wildfire and other extreme weather events on consumers, the business community and the insurance industry while complying with Proposition 103's transparency and accountability requirements and without bailing out the industry. It is essential that elected officials take the time to consider the panoply of solutions before they act.
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SOURCE Consumer Watchdog
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