The Insurance Task Force of CAI’s California Legislative Action Committee has been actively advocating to address the insurance crisis impacting many California community associations. Here is the latest.
As you have heard from us in previous articles, the California Department of Insurance (CDI) has acknowledged the distinction between the personal insurance needs of a single-family home vs. the commercial insurance needs of a community association, and they have begun to include community associations when considering changes to current insurance code and regulations. They are forming a working group in July to conduct an in-depth exploration of potential solutions to the present insurance crisis, and CAI-CLAC has been invited to the table for that discussion. This is something that would have been unheard of even only two years ago.
As a result of our Advocacy Week, we have also been attending meetings requested by legislators and have had some excellent opportunities for education and engagement. The Insurance Staffer for Senator Rubio’s office (Senator Rubio is the Chair of the Standing Senate Committee on Insurance) had decidedly positive feedback regarding our diagnosis of the problem and proposed short- and long-term solutions. She has invited us to a hearing in August to dig into some of those pitches more deeply.
Another recent development you may be aware of involves the California FAIR Plan (CFP). This organization, created to be a “market of last resort” for homes and businesses unable to obtain insurance elsewhere, recently announced an increase in limits available and will be clarifying that condominiums are also included in risks that can be insured by the CFP. While this will take a few months to fully implement, it stands to help some mid-sized associations which have been unable to secure coverage from the voluntary insurance market. While this is certainly a “win,” it is in no way a final solution. The coverage offered by the CFP is limited, and a companion policy will be necessary to fill in the gaps. Moreover, continuously adding more policyholders to the CFP is not a sustainable solution for our state’s insurance industry. Even at the current (lower) limits, CFP premiums do not create enough money coming IN to pay OUT on all of the potential claims. That means prolonged use of this model for the CFP will eventually lead to financial harm for its members – California’s admitted insurers. This prospect could foreseeably lead to some of those companies withdrawing from writing business in our state.
Along these lines, we have heard about State Farm’s decision to stop writing new business in California. While this made national news, many smaller insurance carriers had been pulling out of the state already after finding themselves unable to write business in many areas. Remember, insurance companies are subject to strict solvency regulations. If they are (a) unable to obtain adequate premium for the loss potential associated with a given risk (in our case, wildfire), and (b) legally prevented from reducing that risk by limiting coverage for it, then the insurer CANNOT underwrite that risk. Insurance carriers balance possible losses against collectible premiums. If it is impossible for them to bring in more than they have reason to expect to pay out, it wouldn’t be merely imprudent for them to continue, it would be a breach of their duty to their policyholders and would likely run afoul of regulatory guidelines, laws, and industry best practices. To prevent the present crisis from getting worse, California must find a way to make it financially possible for carriers to participate in our state’s insurance market.
Thank you for your support of CLAC and for your interest in the progress of our Insurance Task Force. We recognize the overwhelming burden it has created for so many California communities, and we’re grateful for your partnership in these efforts.
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