No deal reached to keep insurance companies in California; leaving crisis unresolved

A rumored legislative deal aimed at keeping home insurance companies from bailing on California is dead now that the deadline for a bill has passed. But a consumer group that has been attacking what it called a  back-room insurance bailout plan warned Tuesday that those secret talks with the state’s Insurance Commissioner haven’t ended.

“These negotiations were marked by secrecy and public interest advocates were barred from the room,” Carmen Balber, executive director of Consumer Watchdog, said in a statement Tuesday. “Working in the dark from the insurance industry’s playbook to impose Florida-style deregulation in California isn’t how we’re going to solve this crisis and keep homeowners insured.”

A top insurance industry representative Tuesday denied companies were behind any secret dealings and blamed the California’s collapsing insurance market on regulations more burdensome and bureaucratic than in other states.

“If you believe that narrative, you are being fooled, the insurance industry did not draft an end of session legislative proposal,” said Rex Frazier, president of the Personal Insurance Federation of California. He added that insurers would be stupid to pull back business in the state if they were making massive profits. “Maybe there are actually economic reasons for these insurer actions.”

Ricardo Lara, the state’s elected Insurance Commissioner, said in a statement that he’s been seeking solutions as California’s insurance market has been rocked by a series of destructive record wildfires. Major insurers including Allstate, State Farm and Farmers stopped issuing new policies and declined to renew customers in higher-risk areas, leaving homeowners scrambling for coverage and paying higher rates.

How the crisis will be resolved remains a stubborn problem. The Legislature will be out of session starting late Thursday until next year. Lara can pursue changes himself, but consumer advocates say they’ve been shut out of talks on a solution while Lara’s calendar has been filled up with insurers.

“I have always been clear, legislation is one of many options that we have been pursuing,” Lara said. “We also are moving forward with a package of regulatory solutions that will streamline the department’s rate review process, opening it equitably to public input — not just the entrenched interests that have benefited materially from the status quo. We will continue moving forward. Together, we can create a sustainable and resilient insurance market to protect Californians, our communities and our environment.”

While consumer advocates cheered the collapse of a “half-baked bailout” of insurance companies, no deal means no relief yet for consumers, especially those living in wildfire-prone regions who either can’t find an insurer or can’t afford escalating rates. Participation in the state-sponsored, last-resort FAIR plan, intended to provide temporary basic coverage in areas insurers deemed too risky for standard policies, has doubled.

California is among a number of states that have seen insurance rates rise in the wake of catastrophic disasters, which lawmakers, regulators and insurers blame at least in part on a climate being warmed by human industry. Hurricane-ravaged states like Florida also have seen insurers withdraw and rates soar.

According to the Insurance Information Institute, a New York industry information association, California acreage burned by wildfires has grown over the last decade, more people are living in fire-risk areas, and rising costs of repairing or replacing damaged homes have led to increased insured losses.

But the institute says California regulations keep insurers from pricing those rising risks into policiy premiums. Those rules require insurers to base rates on historic losses rather than using predictive computer climate models. They also keep insurers from passing on to consumers their rising costs for reinsurance — insurance for insurance companies — which they buy to help them absorb major losses. And the bureaucratic approval process is too slow and restricts the size of rate increases, so they don’t keep pace with rising risk, insurers say.

“Addressing these California-specific restrictions on how insurers operate could go a long way toward preventing a Florida- or Louisiana-style insurance crisis,” the institute said.

Consumer Watchdog argues that computer risk models are based on proprietary “black box algorithms” and that the state should maintain its practice of basing rate increases on historic loss experience. The group argues reinsurance is sold on an unregulated global market.

Last week, Consumer Watchdog asked California Attorney General Rob Bonta to investigate possible collusion, accusing insurers of refusing to sell insurance to leverage higher prices and derail 1988’s Proposition 103, which gives the commissioner authority over rate hikes. Insurers denied the accusation.

A spokesman said Lara’s office is continuing to explore how the use of catastrophe models “can benefit the public,” with a public meeting scheduled for Sept. 28, and noted Consumer Watchdog also “has materially benefited from the status quo of the insurance marketplace” as a paid “intervenor” assessing rate requests.

“There is no doubt we are at an insurance crossroads,” insurance department spokesman Gabriel Sanchez said. “We will continue to engage with the public as we find practical, lasting solutions.”