Insurance Commissioner Finalizes Plan Allowing Secret Algorithms to Raise Home Insurance Rates; Lies About Making Insurers Sell More Coverage in Return, Says Consumer Watchdog

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Nov 14, 2024, 20:35 ET

LOS ANGELES, Nov. 14, 2024 /PRNewswire/ -- Insurance Commissioner Ricardo Lara is not being honest with Californians about making insurance companies sell more in wildfire areas in return for using secret algorithms to hike rates, Consumer Watchdog said in a Consumer Alert video about Lara's regulation released today. The final regulation was submitted to the state Office of Administrative Law this afternoon.

The Consumer Alert video shows how the Commissioner lied when he promised insurance companies would have to cover 85% of homeowners in wildfire areas in exchange for that right to raise rates. No such requirement exists in the text of the regulation.

"Lara said 85% of people will be covered, but his regulation said instead companies can choose to cover only 5% more people than they cover today. … And companies don't even have to meet that threshold, they can opt for an alternative arrangement if they want," says Consumer Watchdog President Jamie Court in the video.

Watch the Consumer Alert video: https://www.youtube.com/watch?v=FJHHC_NW9Rs

"This is a critical issue because all homeowners are going to pay a lot more for their insurance under Lara's regulations. Companies can use secret algorithms to correspond to black box climate models to raise insurance rates. Even the insurance commissioner doesn't know how much rates will go up because no one can see in the black box. However, Lara's promises of increased coverage are not in the print of the regulation."

"In Florida companies charge more based on this rule and premiums are more than double what they are in California," the video continued.

"Governor Newsom and the Legislature have stood behind Lara's plan. Now that we know he is lying they need to challenge the Commissioner and ask the tough questions. How can we trust an insurance commissioner that lies to regulate the insurance industry? It's time to require insurance companies to cover every homeowner who makes their home safe from fires," the Consumer Alert video concludes.

The final rule also fails to improve transparency or accountability for these models that will determine what Californians pay for insurance, said Consumer Watchdog. The Commissioner ignored testimony by consumer advocates in public workshops concerned with the secrecy of the model review process, lack of minimum disclosures or any technical standards for models, and the lack of accountability for how algorithms will impact rates, said Consumer Watchdog. Instead, the final rule erects new barriers to further limit the public's ability to review models.

"This regulation won't get Californians insured again, but it will keep the algorithms insurance companies use to jack up rates secret," said Carmen Balber, executive director of Consumer Watchdog.

Read Consumer Watchdog's testimony outlining how the regulation guts the transparency, standards and robust oversight that are needed to ensure consumers pay fair insurance rates and are required under Proposition 103 here.

September 17, 2024
June 26, 2024
April 23, 2024

Among the other loopholes in the regulation's "insurer commitment" sections:

Insurance companies won't have to sell comprehensive coverage. They may offer a bare-bones policy equivalent to what consumers get today on the FAIR Plan.
Rate hikes start on Day 1, but insurers won't report progress toward commitments for two years – until at least 2027.
After two years, an insurer may put off meeting a commitment indefinitely, as long as it claims to be making a "reasonable effort."
There are no penalties if a company fails and no timelines for completion.

Among the regulation's failures to require any meaningful oversight of black box models and their impact on rates:

Creates a process designed to keep models and their algorithms private, violating Prop 103's public disclosure requirements.
Does not require wildfire models be proven reliable, predictable and unbiased.
Contains no guidelines for minimum information to be made public; required disclosures will be different for every model.
Actively discourages public participation and expert review of models.
Makes the whole process voluntary, and any model currently in use is exempted from review for years.

SOURCE Consumer Watchdog