Newsom seeks faster insurance rate hikes
Gov. Gavin Newsom is getting more directly involved in the insurance crisis by proposing legislation to speed up the time it takes for insurance companies to raise their rates.
At a Friday news conference discussing his revised budget proposal, Newsom said he was crafting a bill with state lawmakers to expedite the insurance rate approval process. Newsom wants to pass the bill this summer as part of the 2024-25 state budget, which would allow it to take effect as soon as July 1.
California is one of several states that require insurance rate increases to be approved by the state Department of Insurance before they can be enacted. Insurance companies have complained that the time it takes to get new rates approved — which can stretch to a year or more — restricts their ability to quickly respond to the rising cost of doing business, as reflected in inflation and higher building costs.
Newsom is proposing that all rate filings must be reviewed within 60 days.
“Time is important in terms of the rate decision making, and that’s what we’re promoting as a short-term step,” Newsom said Friday.
Insurance Commissioner Ricardo Lara said in a statement that he appreciated the governor’s support and agreed that quick action is necessary.
In the statement posted to X, formerly Twitter, Lara thanked Newsom “for your commitment to making sure we have all the support and resources we need for Department of Insurance staff who are working day and night to stabilize our market.”
Under current regulations, the Department of Insurance has 14 days after a filing is submitted to determine if it meets basic compliance with state requirements. If the answer is yes, the department then has 10 days to notify the public about the filing, and an additional 60 days to then approve it — in total, 84 days from start to finish.
But the process can become longer if a consumer advocate or another approved group requests a public hearing on the filing. Those groups can only make that request when an insurance company requests a rate increase greater than 7% for personal lines or 15% for commercial lines.
The process can also be lengthened if the department requests an extension. From January 2017 to September 2020, the average time for a rate filing to be approved was 167 days, according to the department. In 2020, it took 489 days for a 6.9% increase in home insurance rates by Allstate to be approved. State Farm’s latest 20% rate hike for home insurance was approved in 285 days. Both companies have stopped writing new home policies in the state.
But Harvey Rosenfield, founder of the consumer advocacy group Consumer Watchdog, said it’s not always the fault of the department or public intervenors when an approval is delayed. In a report released by Consumer Watchdog in February, the group noted that companies can delay the process if they fail to submit the proper information when they first file. The report also noted that when an intervention does happen, it often takes months to schedule a conference between the department, the intervenor and the insurance company.
Newsom did not describe exactly what his legislation would do or when the 60 day period would start. A spokesperson for the governor’s office said more details would be released “in the near future.”
Newsom waded into insurance policy most recently last September, when he issued an executive order directing Lara to develop a regulatory plan to stabilize the insurance market.
Prior to that, lawmakers and insurance companies had been working on a deal that would have allowed insurers to raise their rates more easily in exchange for agreeing to cover a certain percentage of wildfire-prone areas. That deal fell apart in September when it didn’t meet the deadline for lawmakers to submit legislation.
In response to Newsom’s order, Lara announced his Sustainable Insurance Strategy — a set of regulatory reforms that offer insurance companies the ability to use certain tools in exchange for increasing coverage in wildfireprone areas.
Such tools include incorporating the cost of reinsurance — insurance for insurers — into rates, as well as the ability to use catastrophe models, which calculate forward-looking estimations of risk. California is the only state where insurance companies are not currently able to do either, according to the department.
Like the failed legislative deal, experts say these reforms will likely trade greater availability for higher rates. All regulations are set to be enacted by December 2024, the department has said. On Friday, Newsom said he was “intimately, deeply mindful” of how hard the department was working on its reforms.
“But December, I don’t think we have that much time,” he said. “We need to get this rate ruling process done.”
“I’m almost of the temptation to do an additional executive order, but under the circumstance, I think working with the legislature on a trailer bill is more appropriate. But we’ve got to move this process along,” he later said.
Rosenfield questioned whether the proposal was feasible. The current department deadlines for rate approvals was set by Proposition 103, a voter initiative written by Rosenfield and passed in 1988. If the Legislature were to alter the current deadlines, it would require approval by voters, he said.
The governor’s office did not immediately respond when asked whether the legislation would go against the provisions of Prop. 103.
Rosenfield also said it would take a “massive infusion” of resources and staffing for the department to be able to start reviewing all rate filings within two months.
The American Property Casualty Insurance Association, a trade association representing home, auto and business insurers, said it appreciated Newsom highlighting the “critical issue.” Denni Ritter, the APCIA’s department vice president for state government relations, said in a statement that delays in rate approvals mean “rates no longer reflect reality and risk by the time they’re implemented.”
“Expediting the rate review process is a vital component to addressing California’s insurance crisis,” Ritter said. “We look forward to working with the Administration, Legislature and Department of Insurance on this crucial reform and other reforms necessary to fix our broken regulatory system and increase the availability of insurance for California homeowners, drivers, and businesses.”