Did Something Change in the California Insurance Market?

Guest Blog By Kimberly Lilley, CIRMS, CMCA, EBP

This is the question CAI-CLAC’s Insurance Task Force has been hearing a lot: has something recently changed in the California insurance market? There are rumors that the Governor signed an Executive Order and the Department of Insurance is promising to take some additional steps, so what exactly IS the change? I think the challenge comes in the question itself. We aren’t talking about “change” in the insurance market so much as a refocus of energy and resources that may help to move us out of the current insurance crisis.

On September 21, 2023, Governor Newsom signed an Executive Order to strengthen the property insurance market in California. The Order asked California Insurance Commissioner Ricardo Lara to take “swift action” to:

1. Address issues with the insurance market;
2. Expand coverage for consumers;
3. Maintain consumer protection;
4. Keep plans affordable.

The Order went on to say that the Governor tasked Commissioner Lara with stabilizing and improving the property insurance marketplace in California. This would mean making California a reliable place for insurance carriers to do business while still maintaining consumer protection and “fair rates.” The Governor acknowledged that this is a balancing act. The Governor encouraged Commissioner Lara to focus on the following goals.

1. Expand choices, stabilize the market. In other words, make sure that property insurance is available to those who need it and that there is some competition.
2. Better rate approval process. This includes improving efficiency in the rate approval process while including all of the factors needed to maintain a competitive insurance market, including potential revisions to the way catastrophe risks and insurer costs are addressed.
3. Stronger FAIR Plan. Maintain the solvency of the FAIR Plan (the California property insurer of last resort), which is currently not in an actuarially sound position. Helping to move consumers OUT of the FAIR Plan and back into the regular admitted market is a part of this. Of course, this is easier said than done when there are not many carriers willing to write property insurance in California.
4. Accelerate implementation. This allows the Department of Finance to work closely with the Department of Insurance on the rule-making needed to accomplish these goals.

A few hours later, the Department of Insurance announced its “California’s Sustainable Insurance Strategy.” This strategy includes the following.

1. Soliciting commitments from insurance companies to write no less than 85% of their property coverage in California in high wildfire risk communities.
2. Giving FAIR Plan policyholders who perform home-hardening in accordance with the new Safer from Wildfires regulations the first chance to move back into the traditional insurance market. This would help the insured obtain better coverage and increase the FAIR Plan’s solvency.
3. Moving new rules related to climate catastrophe modeling more quickly through the review process.
4. Ordering the FAIR Plan to build its reserves and strengthen its financial safeguards.
5. Asking the FAIR Plan to:
   1. Change its rule limiting commercial coverage to $20 million for one location (no matter how many buildings) to $20 million per building;
   2. Increase insurance access for condominiums throughout California;
   3. Increase the amount of data it reports to the Department of Insurance.
6. Having public meetings to discuss incorporating reinsurance costs into rate filings.
7. Decreasing the time needed to approve rate filings by hiring additional staff and enacting intervenor reform.

This information provides insight into the direction the Department of Insurance is heading as it searches for viable solutions to California’s insurance crisis. However, as of the date of this article, we have not seen any written agreements with the FAIR Plan or admitted carriers in California.

So far, the Department’s goals seem to be aspirations rather than guarantees. However, this refocus of goals and resources toward stabilizing the insurance market, encouraging carrier participation, and encouraging risk mitigation is a step toward a robust and sustainable insurance marketplace. We are not there yet, but at least we can now look forward instead of remaining stuck in the past.

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