Records Show Insurance Commissioner's Deal with Industry to Expand Wildfire Coverage is a Sham, Says Consumer Watchdog

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Oct 26, 2023, 13:12 ET

LOS ANGELES, Oct. 26, 2023 /PRNewswire/ -- Documents obtained under the Public Records Act and Prop 103 reveal details of the secret proposal to bail out the insurance industry that Commissioner Lara and insurers unsuccessfully tried to jam through the Legislature during the final days of session. The language previews the plan that Lara announced a week later, under which he will issue new anti-consumer regulations that track the failed legislative proposal.

The documents reveal two massive loopholes that make the deal Lara cut to deregulate insurance in California, in return for a "commitment" from insurers to expand home insurance coverage in wildfire areas to 85% of their market share outside risky areas, a fraud.

Insurers would be allowed to meet their commitment by offering bare bones policies – the type of policy homeowners already have access to under the FAIR Plan.
The commissioner could waive the "85% commitment" to sell more home insurance in wildfire areas for any insurer that claims it cannot meet its commitment.

The records obtained are emails and bill language circulated by the commissioner's chief deputy to the insurance industry's top lobbyists and legislative staff in late August.

Read the documents.

"These documents prove Commissioner Lara's deal with the insurance industry is an outrageous fraud on the public that will make Californians pay vastly more for insurance but not get more people insured. Lara tried to jam the deal through the legislature, and when that failed repackaged it as a regulatory plan. He must explain to the public how he can support an agreement that eviscerates insurance oversight in California without getting a single new homeowner insurance," said Harvey Rosenfield, author of insurance reform Proposition 103 and founder of Consumer Watchdog.

The documents also confirm that the proposal circulating in Sacramento in late-August and early-September would have forced homeowners and business owners to bail out insurers for billions in FAIR Plan liabilities.

Insurers' Fake Commitment to Expand Wildfire Coverage

The only purported consumer benefit of Lara's legislative and regulatory plans is a "commitment" by insurers to expand home insurance coverage in wildfire areas to 85% of their market share in the rest of the market. The actual language of the August bill proves that promise is false and will not expand insurance to homeowners struggling to find coverage.

The bill would allow Lara to waive insurers' "commitment" to expand coverage at any time for any insurance company that claims "it is not possible" to meet their commitment.

Even if met, the "85% commitment" doesn't require insurers to offer homeowners the standard insurance policy required under California law. Insurers can reach 85% by choosing to take policyholders out of the FAIR Plan but sell them only the bare bones policies offered by the FAIR Plan. In other words, insurers could meet their "commitment" but homeowners would be stuck with limited-benefit, high-cost policies like those they have now, that just happen to be sold by an admitted insurer instead of the FAIR Plan.

The proposal does not require insurance companies to meet their "commitment," and it contains no detail about how it would be monitored or implemented. There is no timeline to comply, nothing about how compliance will be independently certified, and no penalty for failure.

Nothing requires insurers to charge a price that consumers are able to pay. The Commissioner has specifically stated he is no longer concerned about affordability. Making insurance unaffordable is a way for companies to claim "it is not possible" to meet their "85% commitment."

Insurers who say they cannot meet the "85% commitment" would still win the deregulation contained in the rest of the agreement.

Proposed Deregulation in Bill Also Mirrors Lara's Regulatory Plan

The bill contains other provisions that make up the regulatory proposal Lara announced as a solo deal made with the insurance industry in September. It would allow insurance companies to get massive rate increases by inserting unverifiable and unjustified costs into pricing.

Allows insurance companies to use private catastrophe models sold by Wall Street firms and insurance ratings agencies that have stated publicly they will not disclose their algorithms, to set residential insurance rates.

Authorizes insurance companies to pass through to consumers the unregulated price of reinsurance but says the passthrough will be limited to "California-only risks." There is no definition of how "California-only risks" could be segregated, which has never been done before.

The deal also illegally guts the consumer protections of Prop 103 that have saved Californians hundreds of billions of dollars, including the right of the public to independently scrutinize and challenge rate increases that are unjustified, another target of Lara's September announcement.

Directs the Commissioner to fast-track agency approval of rates, prioritizing speed over accuracy and derailing the requirement that insurance companies open their books and fully justify a rate increase before the Commissioner can approve one.

Imposes new limitations on public participation in rate review, effectively precluding public input at each decision point, and increases incentives for insurers to withhold data needed to determine if a rate increase is justified, as they routinely do today.

Requires publication of documents filed by public participants in rate reviews on the CDI website (which Consumer Watchdog strongly supports), but does not require publication of insurer objections, opposition to data requests, or other information filed by insurers in response to public participants – information Consumer Watchdog has long urged be made public. Nor does it require publication of proposals and communications between CDI and insurance companies.

Public Bailout of FAIR Plan Confirmed

The documents also confirmed that the legislation would have bailed out insurers for their FAIR Plan obligations, a proposal that was not part of Commissioner Lara's September announcement presumably because the change must be done by legislation, not regulation.

The bill allows insurance companies to force all California home or commercial property owners to bailout insurance companies by paying surcharges to cover FAIR Plan losses (today, insurance companies are responsible for such losses).

SOURCE Consumer Watchdog