Amid an insurance crisis that pushed property insurers to exit California’s market, Gov. Gavin Newsom penned an executive order that “urges Insurance Commissioner (Ricardo) Lara to take swift action to address issues with the insurance market and expand coverage options for consumers.”
Well, the words “swift action” apparently don’t mean the same thing to the state Department of Insurance as they do to the rest of us. Newsom issued that order in September 2023 – and here we are in the same mess eight months later. Last month, two additional insurance companies notified the department of their plans to exit California.
Meanwhile, speculation increases that the state’s insurer of last resort – the bare-bones FAIR (Fair Access to Insurance Requirements) Plan – could face insolvency as desperate homeowners overburden that system. Without action, this insurance crunch can threaten housing markets and our economy.
Finally, Newsom announced this month that he is drafting a budget-related trailer bill that would expedite the rate-hike approval process. It can currently take over a year for insurance companies to get approval decisions from the department given the bureaucratic process that developed after voters approved 1988’s Proposition 103 regulating insurance rates.
So-called “intervenors” can challenge rate hikes and drag it out. Insurers’ main complaint involves that timeline. Newsom’s proposal will limit the time to 60 days. It’s a necessary approach although we’ll need to look closely at the details. Legislation is more impactful than another toothless executive order.
Lara has been working on a fix that, as the Mercury News reported, would include “efforts to allow insurance companies to use catastrophe models to set rates, as well as bill consumers for the cost of reinsurance, which is insurance for insurers.” The latter is particularly important, as reinsurance protects insurers’ capital assets – and thereby allows them to write more policies.
But Lara announced his proposals won’t be ready until December. Newsom even zinged the commissioner for that slow timeline at a recent press conference: “We need to stabilize this market. We need to send the right signals, we need to move. … (Lara’s) team is working their tails off … . But December? I don’t think we have that much time.” To his credit, Lara responded by agreeing that “time is of the essence.”
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Consumer activists are concerned about the plan rubber-stamping insurance company rate hikes, but increased prices in the short term are better than a continuing exodus of insurers, coverage shortages and an unstable FAIR Plan. Frankly, this problem is the result of a governor, insurance commissioner and lawmakers who have refused to modernize insurance regulations until we hit the crisis stage. We’ve had signs of a coming crisis for years.
Insurance problems had mainly plagued property owners in areas with high fire risk, but the non-renewals now are affecting all types of property owners. Property owners rightly worry about higher rates, but allowing rates to more quickly rise will encourage more companies to stay in or enter our market. This will moderate rates over time.
The root of the problem is Prop. 103, but – as this Editorial Board has often noted – the governor and department have plenty of streamlining tools available that don’t require ballot changes. Newsom is on the right track here, but why did it take so long?
