Lara's New Draft Regulation Not Improved: Loopholes Still Free Insurers From Promises to Sell More Coverage; Public Calls for Model Transparency, Accountability Go Unanswered, says Consumer Watchdog

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Oct 02, 2024, 19:54 ET

LOS ANGELES, Oct. 2, 2024 /PRNewswire/ -- Consumer Watchdog said today's amendments to Insurance Commissioner Ricardo Lara's regulations that let insurance companies hike rates based on secret algorithms related to climate models still do not expand coverage for policyholders who have been non-renewed. The draft rules also fail to address concerns that the regulation does not require transparency or accountability for these models that will raise insurance rates for all Californians.

The new draft does not close loopholes that allow all insurance companies to say they will increase coverage in fire areas by just 5%, not the 85% coverage Insurance Commissioner Lara has repeatedly promised. It also continues to allow insurers to move the goalposts if they can't meet either standard.

Today's amendments also ignored testimony by consumer advocates in public workshops concerned with the secrecy of the "PRID" model process, lack of minimum disclosures or any technical standards for models, and the lack of accountability for how algorithms will impact rates. Instead, the draft creates new barriers that would further limit public participation in the PRID process.

"Commissioner Lara could have fixed his rule to make insurance companies meet their commitments, to spell out the penalties companies would face if they fail, or to mandate transparency for models. But today's amendments just continue the lie. This regulation still doesn't get people insured or make the secret algorithms insurance companies will be allowed to use to raise rates publicly accountable," said Carmen Balber, executive director of Consumer Watchdog.

Consumer Watchdog and other public interest organizations raised these and other concerns that the Commissioner did not address in comments at the California Department of Insurance public hearing about the regulation last month.

In comments submitted September 17, 2024, Consumer Watchdog took issue with other loopholes in the regulation that would free insurance companies from returning to areas of the state they have abandoned:

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.

The Commissioner has also falsely claimed the regulation will provide robust public review of the black box models he will allow insurance companies to use to raise rates. In fact, the regulation:

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 a PRID entirely for up to four years.

SOURCE Consumer Watchdog