Backers of Controversial California Homeowners Insurance Bill Like Its Momentum, Timing

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Backers of a controversial bill in California, which they say is designed to increase insurance coverage in high-risk wildfire areas by amending Proposition 103, believe it has the right timing and plenty of momentum to go all the way.

The bill comes ahead of the annual wildfire season in California, which left its mark in 2017 and 2018 with historic blazes across the state. After paying out $24 billion in wildfire claims in 2017 and 2018, many property insurers pulled back coverage in high-risk areas region, nonrenewing policies and ceasing to write new ones.

Assembly Bill 2167, authored by Assemblyman Tom Daly, D-Anaheim, would establish the Insurance Market Action Plan program, or IMAP program, under which residential property insurance policies in a county may qualify for IMAP protection.

After it was introduced, it drew calls of foul from consumer advocates and the state’s insurance commissioner. But that didn’t stop the bill from flying though the Assembly.

“I think people are starting understand the issue here,” said John Norwood, an industry lobbyist with Norwood and Associates. “If we’re just going to keep putting mandates on insurance companies, it’s not going to help the marketplace.”

Seren Taylor, senior legislative advocate with the Personal Insurance Federation of California, a strong backer of the bill, thinks the momentum and timing are right for it.

“I think chances are pretty good because you go into fire season and there’s already momentum coming out of the Assembly,” he said.

California Insurance Commissioner Ricardo Lara does not like the bill, which follows up on several contentious battles he’s had with the industry in search of solutions to insurers withdrawing from high-risk areas.

“Wildfire season is already here but instead of helping homeowners prepare, the insurance industry is up to its old tricks,” Lara said in a statement issued follwing passage of the bill by the Assembly. “AB 2167 is an insurance industry ‘wish list,’ with nothing to help consumers. The bill is going to lead to higher rates and weaker consumer protections at a time California can least afford it. The bill does not further the purposes of Proposition 103, passed by voters in 1988 to stop discriminatory insurer rating practices and provide oversight for insurance rates.”

Lara has been squaring off with insurers and the FAIR Plan over insurance coverage in the midst of the state’s growing wildfire problem for more than a year. In November, Lara ordered the FAIR Plan to begin selling comprehensive insurance plans starting in 2020, with an intent of saving homeowners money by not forcing them to purchase multiple insurance plans.

The FAIR Plan fought back, and in March a judge issued a preliminary injunction barring Lara’s orders.

Consumer Watchdog earlier this month called AB 2167 an “insurance industry legislative attack on California’s effective rate regulation.”

AB 2167 would require an IMAP filing submitted to the California Department of Insurance by an insurer to include elements such as a request for adequate rates, a plan for maintaining solvency of the insurer and mitigation requirements.

It would require an insurer that submits an IMAP filing to receive an expedited review of its rate filing, if the insurer uses an actuarial assumption for trend and loss development that is at the midpoint or less of rate impacts, or files for a rate increase based solely on increased reinsurance costs, and does not change any other aspect of its rate filing from its previous department approved rate.

The bill calls for ensuring insurance rates are adequate to avoid insurer insolvencies and to permit insurers to operate in the state’s highest risk areas, reducing the number of residents that are required to rely upon the California FAIR Plan, incentivizing insurers to seek cost-based rates in exchange for assurances that they will serve high-risk communities at levels similar to their statewide presence and developing systems of accountability for individual and community-based loss mitigation efforts.

The bill’s language makes the argument that climate change has created a “new reality” in California, where the average length of fire seasons are 80 days longer than in the 1970s, and that major insurers are pulling back from writing new policies or renewing policies in the wildland-urban interface fire areas.

Additionally, the bill notes, premiums are increasing in the WUI, while most insurers do not take into consideration wildfire mitigation because no single insurer has loss experience in the WUI to validate the rates and premiums charged for each wildfire risk model score.

The bill would amend voter approved Proposition 103 and thus require a two-thirds vote. It is contingent on the enactment of Senate Bill 292, which focuses on wildfire risk modeling and mitigation.

SB 292, authored by state Sen. Susan Rubio, D-Baldwin Park, and coauthored by Daly, would require the California FAIR Plan Association, a joint reinsurance association in which all insurers licensed to write basic property insurance participate, each year to submit a report to the commissioner that lists certain counties to be designated by the department as an IMAP eligible county under the IMAP program that would be established if AB 2167 passes.

That bill, which passed Senate with a 38-0 vote, would also state the intent of the Legislature to establish a commission in state government consisting of the insurance commissioner, the state Fire Marshall, the executive director of the California Building Standards and the director of Emergency Services to convene stakeholders to develop community hardening standards that have the propensity for reducing loss due to wildfires.

The bill would additionally create the Catastrophic Modeling Advisory Committee.

Proponents of the bills say they would not undermine Prop 103, the long-standing consumer insurance law that gives the commissioner the power to pre-approve rate adjustments proposed by insurers.

They say if prices could be adjusted to reflect supply and demand, the state would have a more competitive market, resulting in lower prices and more insurers offering coverage.

Prop 103 makes rate approvals contentious, enabling an intervenor process that allows third parties to object, a process that is often dominated by consumer groups that are compensated for intervening, proponents say.

“If they want a solution, then this is the only viable one there is,” Taylor said.

He called the argument that opponents of the bill are making, that it undermines Prop 103, “fallacious,” and he pointed to Section 10109.3 of the bill.

That section states: “(a) A rate proposed as part of an IMAP filing shall not be excessive, inadequate, or unfairly discriminatory, and shall be actuarially sound so that premiums are adequate to cover expected losses, expenses, and taxes, and shall reflect investment income of the insurer. (b) A rate requested as part of an IMAP filing shall be subject to the prior approval of the commissioner.”

“Under these bills, the Department of Insurance has final say over all IMAP proposals and all rates are subject to the Prop 103 prior approval process,” he said.

Lara, in his statement, argued that AB 2167 won’t stop the rise in non-renewals or mandate that insurance companies write in high-risk areas.

“No consumer groups support this bill, because AB 2167 does not address the things that first responders and consumers have identified as necessary 鈥� namely give incentive for home hardening and wildfire mitigation that will reduce the risk of devastating fire, save lives, bring down the cost of insurance, and make it widely available,” Lara stated.

Norwood said that without something like AB 2167, there’s a danger of creating a subsidy in which insurance consumers in suburban areas start subsidizing people living in high-risk fire risk areas.

And, he added, either the commissioner approves the IMAP filing, or he doesn’t.

“There’s no harm, no foul with this,” Norwood said.