A consumer group says that it has proof that California’s Department of Insurance consulted with industry lobbyists in drafting a proposed overhaul to the state’s troubled home insurance market announced last month.
But in an unusually caustic response, state insurance officials claim the consumer group is the one benefitting from a broken system.
Through a public records request, the group Consumer Watchdog obtained emails of draft language for a proposed bill that state insurance officials exchanged with insurance lobbyists in late August during a failed closed-door legislative effort to address the insurance market.
The three emails to and from Deputy Insurance Commissioner Michael Martinez also included representatives of the governor’s office and legislative leaders. The legislation never materialized, but the proposed changes in the emails are similar to an overhaul that Commissioner Ricardo Lara later announced Sept. 21.
“These documents prove Commissioner Lara’s deal with the insurance industry is an outrageous fraud on the public that will make Californians pay vastly more for insurance but not get more people insured,” said Consumer Watchdog Founder Harvey Rosenfield, author of an initiative that set the state’s insurance framework.
The commissioner’s office in turn accused Consumer Watchdog of seeking to protect a regulatory system that the consumer group’s founder crafted and benefits from financially by contesting insurance rates that remain below market and have left many homeowners unable to obtain coverage.
“Watchdog is turning a blind eye to consumers’ needs while defending its own insurance piggy bank,” Deputy Insurance Commissioner Michael Soller said in a statement.
After a series of destructive wildfires in recent years, several insurance companies cancelled coverage of California homeowners in and around regions of high fire risk, including many parts of the Bay Area, forcing them to buy pricey, minimal coverage policies through California’s last-resort FAIR Plan, where participation has doubled. Some of the state’s biggest insurers, including State Farm, Farmers and Allstate, have capped or limited new policies. And homeowners who remain covered have seen rates soar.
Insurers blame the state’s regulatory framework. They say that approval for requested rate increases takes too long, and revenue hasn’t kept up with rising costs and risks. They have urged changes that would allow companies to factor in computerized catastrophe modeling and the costs of “reinsurance” policies covering their risks into rates.
The records provided to Consumer Watchdog include draft bill language that Martinez sent to eight industry lobbyists and copied to the governor’s staff, Assembly speaker, Senate leader and legislative insurance committees. Two other documents sent from an industry lobbyist to Martinez suggested tweaks to the bill language.
The draft bill included language the industry had sought allowing catastrophe modeling and reinsurance costs to be factored into rates, and other provisions that would help the industry ensure solvency of the privately run FAIR plan, created through state legislation. It also included a commitment from insurers that 85% of their statewide market share would be in high wildfire risk communities, though the bill language provided that the commissioner could allow exceptions. The bill never emerged by the mid-September legislative deadline.
But on Sept. 21, Lara hastily called a news conference after Gov. Gavin Newsom announced an executive order urging him to take swift action to fix the state’s spiraling insurance market. He announced what he called the state’s largest insurance reform since voters passed Rosenfield’s Proposition 103 nearly 35 years ago, which he said he would develop over the next year.
The plan would include new rules for the review of climate catastrophe models and incorporating California-only reinsurance costs into rate filings, as well as changes to the FAIR Plan to prevent it from going bankrupt in case of an extraordinary catastrophic event. It also included plans to improve rate filing procedures and timelines including “intervenor reform.”
Rosenfield said the plan the commissioner sketched out in concept reflects the draft bill Lara’s office shared privately with insurance lobbyists. And Rosenfield said that proposed bill included troubling details likely to emerge in the plan Lara’s now working on that weren’t mentioned at his news conference.
Among them, the commissioner could waive the provision requiring an insurer to provide 85% of its coverage in high wildfire risk areas if the company says it’s not possible, weakening a key industry concession in exchange for looser rate regulation. Other language would allow insurance companies currently responsible for FAIR Plan losses to recover those costs through surcharges to all their insured property owners.
Soller said the insurance commissioner has sought input over the past four years at hundreds of town halls and forums with homeowners, consumers, farmers and business owners across the state. And he said the department will post opportunities for further public comment on its website as regulatory changes are developed over the coming year.
“While Consumer Watchdog sells cynicism to protect its own pocketbook, we are focused on solutions for all California,” Soller said. “We will continue to seek public input and work with all constructive partners who want a modern, sustainable insurance market in the face of climate change.”