Governor Newsom is pushing for a faster review of insurance rate hikes in order to address the current challenges faced by the California homeowners’ market. He is supporting a bill that would require the Department of Insurance to complete reviews of proposed premium increases within 60 days, aiming to prevent further exits from the market. Newsom emphasized the need to stabilize the market and alleviate the burdens on the state’s FAIR Plan, which has already accumulated over $300 billion in payouts. Instead of issuing an executive order, the governor is proposing a bill to expedite the review process. It’s worth noting that Insurance Commissioner Ricardo Lara is also working on a separate insurance reform package, but its implementation is expected to take place at the end of the year.
Newsom expressed frustration with the lengthy process of implementing emergency regulations, stating that waiting until December is not an option.
How does this bill align with other proposed reforms?
Lara has negotiated a deal with the insurance industry to make the market more appealing, although the specifics are still being finalized.
Under the plan, insurers would be able to factor in the cost of reinsurance they purchase to protect against major fires and other disasters when determining premium costs. Additionally, insurers would be permitted to use advanced algorithms to predict the risk and expense of future fires, instead of solely relying on past events. It remains unclear how an insurer’s request for expedited rate approval this year would fit into the proposed reforms.
Has Lara responded to the governor’s proposal?
The commissioner tweeted on Friday that his department has made significant progress in implementing his planned reforms, but acknowledged that more work is needed. Lara also mentioned that his department is collaborating with the governor and the Legislature to ensure critical budget language is in place to achieve their goals.
What is the opinion of consumer groups?
Jamie Court, the president of Consumer Watchdog, expressed confusion regarding the proposal and expressed concerns that it could simply rubber-stamp proposed rate increases. Court pointed out that Proposition 103, a landmark initiative from 1988, already requires rate hikes to be reviewed within 60 days, except under certain circumstances. These circumstances include requests for rate increases above 7% for homeowners insurance, which allows consumers to request a hearing, or if the commissioner decides to hold a hearing independently.
How does the insurance industry react?
Rex Frazier, the president of the Personal Insurance Federation of California, a trade group representing property and casualty insurers, expressed concerns about the delays in the 60-day rate reviews promised by Proposition 103. Frazier mentioned that the Insurance Department often asks insurers to forfeit their rights to a timely decision or face administrative hearings, resulting in significant delays. However, Frazier refrained from commenting on the governor’s proposal until the draft language is made public.
As for the next steps, Governor Newsom’s office will release the draft bill, which will then be sponsored by a legislator and included in the state budget adoption process. The budget needs approval from the Legislature by June 15. Newsom unveiled his plans for a revised $288-billion budget on Friday, which includes several cutbacks to address a nearly $45-billion shortfall.