New regulations proposed by California Insurance Commissioner Ricardo Lara are unlikely to make home insurance affordable or accessible for many Californians, according to Consumer Watchdog.
The proposed rules are intended to compel insurance companies to increase sales in “distressed areas.” However, they do not require these companies to offer policies at prices consumers can afford. Moreover, insurers could be excused from this requirement if they fail to meet it. In exchange, insurance companies would be allowed to implement double-digit rate increases by using opaque, unverifiable algorithms to set prices, further escalating insurance premiums, Consumer Watchdog warned.
“Insurance Commissioner Lara’s plan gives insurance companies two years to comply, but they can start raising rates immediately. After two years, if insurers claim they can’t meet their targets, the commissioner can simply adjust the goals. This supposed consumer benefit is effectively nullified by the numerous exceptions,” said Carmen Balber, executive director of Consumer Watchdog.
Key Points of the Proposal:
- Coverage commitments will not take effect for two years, while insurers can raise rates immediately using non-transparent models.
- Insurers can avoid penalties if they fail to meet commitments by showing they are “taking reasonable steps to fulfill their insurer commitment.” They can also propose “alternative commitments” for various reasons, including high claims.
- Commercial policies, including those for large condo and apartment complexes, face even more lenient requirements.
- The rules do not apply to small or new insurance companies. Insurers that recently stopped writing policies in California could be allowed back without having to sell in distressed areas.
- Companies will not have to publicly prove they have met their commitments.
- The regulations permit insurers to continue redlining entire distressed zip codes or counties.
- There is no requirement linking the pass-through of unregulated reinsurance costs to the commitment for expanded sales. Commissioner Lara has previously suggested this provision would be included along with the models.
“A promise to expand coverage with unaffordable policies won’t help California’s homeowners, condo, and apartment owners get insured again. If premiums remain out of reach and insurers fail to meet their commitments, the Commissioner can waive the requirements,” said Balber. “To ensure more Californians get coverage, insurers should be required to sell to every homeowner who protects their property from wildfire.”
The use of non-transparent models and the transfer of reinsurance costs to consumers have not stabilized California’s insurance market. In Florida, home insurance rates are two and a half times higher than in California. Florida’s FAIR Plan covers nearly 20% of the market, compared to California’s 4%, yet insurers have still exited the state.
“The Commissioner’s entire plan risks turning California into Florida, where insurance companies got everything they wanted, but people still can’t get coverage,” Balber concluded.
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