Oroville Mercury-Register

Deal to appease fleeing insurers

- By John Woolfolk

In a state scorched by a series of devastatin­g wildfires, California­ns have seen the costs of insuring their homes soar and coverage options evaporate — if they can find a company to issue a policy at all.

Now, consumer advocates say lawmakers and the state's insurance commission­er are secretly working on a deal to free up more coverage in the Golden State — but at the cost of caving to insurers' demands to loosen regulation­s and let them charge higher rates.

“This would constitute the biggest insurance industry bailout in modern history, rushed through without the public deliberati­on that placing a burden of this magnitude on policyhold­ers demands,” said Consumer Watchdog founder Harvey Rosenfield.

In a state with the country's strongest consumer rate protection­s, big insurers such as Allstate, State Farm and Farmers have put the brakes on new policies, leaving many homeowners scrambling for coverage and digging much deeper to pay for it.

The companies say that among other issues, pricing models — based on actual past losses and not on projection­s of future climate-driven disasters — are not keeping pace as costs to repair or replace homes mount.

But Rosenfield said lawmakers are trying to cram a backroom deal favorable to insurers through the Legislatur­e with minimal public review as it wraps up its term over the next couple weeks, and even caught a longtime industry lobbyist bragging about it to a flight attendant on a plane to the Capitol last week.

Insurance industry representa­tives have been tight-lipped about the rumored dealings, reported in an Aug. 21 Politico report. That report quoted Sen. Susan Rubio, D-Baldwin Park, who chairs the Senate's Insurance Committee, saying “everything's on the table, and I don't rule out something being done.” Rubio and her staff did not respond to repeated inquiries from the Bay Area News Group.

Insurance Commission­er Ricardo Lara's office said the state's insurance market “faces challenges” brought on by wildfire and storm losses, inflation, prolonged rebuilding, supply chain disruption­s and high material costs, while “entrenched interests on all sides” are defending “a system that is clearly not working.”

“There is no quick fix,” said Michael Soller, a spokesman for the commission­er. “We will continue moving on regulatory changes intended to address the problems we have seen.”

The commission­er's office wouldn't comment on any potential legislativ­e deal in the works, but Soller said that “if needed,” Lara “will pursue legislativ­e action.”

Rosenfield, author of the 1988 Propositio­n 103 voter revolt that rolled insurance rates back 20% and requires the elected insurance commission­er to approve rate increases, smells a rat. He says insurers, gunning for Prop 103 for decades, are limiting new coverage to pressure consumers and lawmakers into loosening regulation­s, which he said will spur higher rates while making it harder to assess their need.

Rosenfield said it wouldn't be the first time. He points to a 1991 antitrust investigat­ion by thenAttorn­ey General John Van de Kamp that found “the simultaneo­us withdrawal of scores of insurance companies from California following the passage of Propositio­n 103 was the result of collusion among insurance companies.”

“The insurance industries put a gun to the people of California, and the threat is if we don't let them charge whatever they want and do whatever they want in the state, they will leave the state altogether,” Rosenfield said. “There are some people in Sacramento who think the public should pay the ransom.”

California is hardly the only state grappling with home insurance problems. Hurricane-ravaged Florida has become the poster state for an imploding insurance market.

Insurers have been upfront about what they see as California's problem. According to the Insurance Informatio­n Institute, a New York industry informatio­n associatio­n, California acreage burned by wildfires has grown over the last decade, more people are living in fire-risk areas, and rising costs of repairing or replacing damaged homes have led to increased insured losses.

But the institute says California regulation­s prevent insurers from pricing those rising risks into policies. Those rules require insurers to base rates on historic losses rather than using predictive computer climate models. They also keep insurers from passing on to consumers their rising costs for reinsuranc­e — insurance for insurance companies — which they buy to help them absorb major losses. And the bureaucrat­ic approval process slows and restricts the size of rate increases, so they don't keep pace with rising risk.

“Addressing these California-specific restrictio­ns on how insurers operate could go a long way toward preventing a Florida- or Louisiana-style insurance crisis,” the institute said.

Reportedly, the rumored deal being discussed in the Capitol would do just that.

Rosenfield says California regulation­s have kept rates manageable, about 5% lower than the U.S. average for a standard policy, at $1,241 a year in 2020 compared to $1,311 nationally, while the comparable rate in Florida was $2,165. And he says consumers should beware of any deal to roll back regulation­s, arguing it likely won't require insurers to begin writing new policies in the state. He notes that insurers have been leaving the Florida market even though they can do all the things there they can't do in California.

Caught in the middle are folks such as Anita Stoddart of Boulder Creek. Her mobile home suffered some smoke damage in the 2020 CZU Lightning Complex wildfire. In June, her insurer sent notice that her $700-a-year policy wouldn't be renewed. That forced her onto the last-resort, minimal coverage FAIR Plan — which just got state approval for a 15.7% rate increase starting in December — and a supplement­al policy that will cost her $1,200 a year.

“I know they consider us all high risk, but it's getting to where pretty much the whole country is high risk,” Stoddart said.

 ?? DAI SUGANO — BAY AREA NEWS GROUP ARCHIVES ?? Firefighte­rs work to protect homes from the CZU August Lightning Complex fire in Boulder Creek on Aug. 21, 2020.
DAI SUGANO — BAY AREA NEWS GROUP ARCHIVES Firefighte­rs work to protect homes from the CZU August Lightning Complex fire in Boulder Creek on Aug. 21, 2020.

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