California insurance leader defends department’s work amid pressure and home, auto challenges

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Insurance Commissioner Ricardo Lara on Wednesday defended his department’s efforts to roll out a series of rule changes this year to try and stabilize California’s insurance market as he faced pointed questions and calls for greater urgency from lawmakers.

Lara said the department was still on track to complete the revisions by the end of the year. But he resisted requests that the agency move more quickly due to concerns that the proposals won’t be able to hold up in court if done in haste.

“I have to get this right without undue political or reactive pressure,” Lara said during an Assembly Insurance Committee hearing.

Damaging wildfires over the past decade, a spike in inflation and growing risks posed by climate change have created insurance turmoil in the state. Major companies have paused, restricted and cut back business in recent years, leaving many homeowners with rapidly rising prices or no options for coverage except with the California FAIR Plan, the state-created insurer of last resort.

In response, Lara in September promised to make a series of rule changes with the goal of spurring companies to write more policies and give homeowners more options. That followed an executive order from Gov. Gavin Newsom calling on the commissioner to take quick action. Lara has set a deadline for the department to complete those changes by the end of 2024.

Yet for lawmakers that is not fast enough.

“Time is running out,” said Assemblywoman Lisa Calderon, a Democrat who represents an area east of Los Angeles and chairs the committee. “It’s imperative that the insurance market stabilizes now.”

Lara served in both the Senate and Assembly before he won a 2018 election to become the state’s next insurance commissioner. His first set of changes, proposed in February, aim to speed up the department’s review and approval of price increases for home and automobile coverage. Insurers are required to have rate hikes signed off on by the department and the reviews can sometimes take more than a year. But insurance trade groups weren’t in favor of the initial proposal.

In March, the department announced new changes, which would allow companies to use computer programs to predict losses from wildfires when making rate requests. Currently, insurers must anticipate catastrophic events by looking at the past 20 years, a requirement trade groups argue is obsolete. California is the only state that requires companies to do so.

Those changes have not been implemented and Lara said more will be introduced in the coming months. The commissioner said his department has to be careful to make sure they withstand legal scrutiny and comply with Proposition 103, a measure approved by voters in 1988 that created the role of an elected insurance commissioner and established the department’s role of reviewing rates.

Lara came to the hearing with an optimistic message about the early effects of his department’s efforts. He mentioned a recent announcement by Farmers Insurance, one of the state’s largest insurers, that the company would resume accepting new business later this year for polices that cover condo and homeowner associations.

“Californians are already seeing the benefits,” Lara said.

He did not, however, bring up more negative news, including a March decision by State Farm to drop roughly 72,000 home, rental, commercial apartment and other property polices across the state.

That was noted by Assemblyman Jim Wood, a Democrat whose district runs along the coast north of Santa Rosa.

“The urgency of our constituents is significant,” he said.

Wood asked why the department had not yet introduced another part of its strategy that would allow companies to incorporate the cost of insuring their own policies in the state into rates that people pay for coverage. Lara said that was expected to happen in July.

“Are we reinventing that wheel too?” Wood said. “What am I missing here?”

Lucy Wang, the department’s special counsel, who joined Lara at the hearing, said it was not a simple change. If it was, she added, it would have been approved. The department is working to hire an expert who will come up with formulas that will be used when the new rules go into effect, Wang said.

Lara said the department would also roll out more details soon about a plan that requires companies to write a certain percentage of policies in areas with wildfire risks, a key aspect of his strategy.

Wood and other lawmakers asked Lara if his office had enough staff to deal with its work, including after government-wide budget cuts recently ordered by Newsom.

Lara said it did.

Newsom, for his part, wasn’t at the hearing, but has also weighed in on the issue. On Friday, he called for speeding up the department’s review of the requests companies make to increase rates.

“Let’s move this along,” the governor said.

The specific text of Newsom’s proposal had not been released as of Wednesday afternoon.