State Insurance Commissioner Ricardo Lara, during Santa Rosa visit, discusses his plan to stabilize insurance industry [The Press Democrat]

Apr. 19—California Insurance Commissioner Ricardo Lara described the state's last-resort homeowner insurance plan as a "ticking time bomb" and detailed some of his efforts to get insurers to resume writing homeowner policies.

Lara was in Sonoma County Friday morning, attending a press conference at a Santa Rosa health clinic, where he was promoting the recent expansion of Medi-Cal to undocumented immigrant adults.

After the press conference, Lara spoke at length about his regulatory effort to overhaul the state's insurance market in, which he said will be possible through an "historic agreement" with the insurance industry.

Under that agreement, he said his department will modernize and streamline the rate approval process and allow insurers to tie rate premiums to more complex "catastrophe modeling" projections rather than historical data.

In exchange, he said, insurance companies will be required to cover homeowners in the state's wildfire urban interface at 85% of their statewide coverage, as well as help depopulate the state FAIR Plan, an insurance pool of last resort comprised of all licensed insurers.

"We need to depopulate the FAIR Plan, because the FAIR Plan right now for us is a ticking time bomb," he said.

Streamlining the rate approval process is an important step to modernizing insurance regulations in an era of climate change, he said.

"What do we need to do? How do we move quickly on these rate filings," he said. "How do we streamline the process so that we don't wait two or three years to get a rate approved and by the time it's approved the risk has already tripled."

Years of catastrophic wildfires, including the 2015 Valley Fire in Lake County, the 2017 North Bay Wildfires and the 2018 Camp Fire in Butte County were a testament to the threat of climate change in California.

Although insurance companies have recovered some losses from PG&E for its role in sparking recent blazes, the massive insurance payouts have diminished decades of underwriting profits and increasingly spurred insurers to halt writing premiums.

"Nobody's technically left California, but they've just stopped writing policies," Lara said. "That's happened before, in the 90s. But it's never happened at this at this level because of climate change."

Michael Soller, a spokesman for the California Department of Insurance, called Lara's reform effort the biggest insurance reform in three decades, since the department was established.

"The big problem in our market right now is that under our current rules, insurance companies are increasing rates legally with no benefit for consumers," Soller said.

Those rules were established with the passage of state Proposition 103 in 1988, which sought to protect consumers against arbitrary insurance rates. The law required public review of insurance rates and made the state insurance commissioner an elected post.

He said that under California law, insurers are required to use historic data when establishing insurance rates, which are essentially an estimate of future losses.

Lara's new rules call for the use of "catastrophe modeling," a sophisticated tool that uses computer-assisted calculations to estimate projected losses during such events as hurricanes and earthquakes.

Jill Epstein, CEO of Independent Insurance Agents and Brokers of California, said her organization applauds efforts to streamline the rate filing process, as well as the use of more forward-looking catastrophe modeling.

Epstein, whose trade organization represents more than 650 independent insurance agencies and brokerages and more than 14,000 insurance agents in the state, said the proposed changes are long overdue.

She also welcomed another proposed change: the ability for insurers to factor their reinsurance costs into their rate applications. The cost of reinsurance, essentially insurance for insurance companies, has gone up significantly in recent years, she said.

The result of these changes will in the short term lead to increased insurance premiums, Epstein said.

"But there will be enough competition to keep the market place stable," she said. "The only way we can restore a competitive market place is to allow insurance companies to to get higher rates in California."

Epstein said that scenario is better than the current crisis in which insurance companies are pulling out of the California market and homeowners are having to resort to the unregulated surplus lines of coverage that are used by extremely high risk businesses.

The virtual workshop to discuss catastrophe modeling is scheduled April 23 and can be attended via Zoom.

You can reach Staff Writer Martin Espinoza at 707-521-5213 or martin.espinoza@pressdemocrat.com. On Twitter @pressreno.

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