The insurance crisis has come to a head in many states – from Florida, Louisiana, and North Carolina to California. The frequency and severity of convective storms and natural catastrophes have plagued the Property insurance market, with higher rates and carriers hitting pause on writing new business in many areas of the country.
There is outrage from consumers as their rates double and triple and finding coverage for their homes in the traditional insurance market becomes increasingly challenging. There are calls from the public, insurers, and legislators for reforms and solutions as the insurance industry battles climate change, the high cost of inflation, and nuclear verdicts. In the crossfire are elected insurance commissioners, who need to balance what their constituents want and elected them to do and what insurers need to do to cover losses adequately. Eleven states elect commissioners, while the other 39 and D.C. are appointed.
We take a look at how a few states are grappling with their insurance crisis.
California Insurance Commissioner Lara Proposed “The Sustainable Insurance Strategy”
Seven of the top 12 insurers doing business in California either stopped issuing new home and commercial property insurance policies, restricted their coverage, or non-renewed existing policyholders due to massive losses related to wildfires and inadequate rates. To address the crisis, Commissioner Ricardo Lara in September unveiled a package of reforms to protect Californians from increasing climate threats while ensuring the long-term stability of the commercial insurance market. The Sustainable Insurance Strategy is the largest insurance reform since California voters passed Proposition 103 nearly 35 years ago. Prop 103 made the insurance commissioner an elected position and has since required insurers to obtain prior approval from the Department of Insurance before adjusting their rates.
Going from the Fair Plan to Traditional Market
The plan involves transitioning more homeowners and businesses from the FAIR Plan to the traditional insurance market by requiring insurers to write no less than 85% of their statewide market share in high wildfire-risk communities. For example, if an insurer writes 20 out of 100 homes statewide, it must write 17 out of 100 homes in a distressed area.
The plan would also let insurers consider climate change when setting prices, a move to prevent them from fleeing the state over fears of massive losses from wildfires and other natural disasters. Unlike other states, California does not allow insurers to consider current or future risks when deciding how much to charge for an insurance policy. Instead, insurers can consider only what’s happened on a property in the past to set the price. At a time when climate change is making wildfires, floods, and windstorms more common, insurers say that restriction makes it difficult to truly price the risk on properties.
In December, Lara told the state assembly, “California is at an insurance crossroads, and for many Californians, this is an insurance emergency.” Lara underscored the need for marketplace reforms, with the FAIR Plan reporting 20% growth of policies in 2023 and restrictions by major insurance companies pushing more consumers into California’s insurer of last resort.
Lara’s plan has been met with overwhelming disapproval (62%) by Californian voters, who expect to see even more rate increases due to the proposed reforms. The Consumer Watchdog claimed that the Sustainable Insurance Strategy lacks substantial consumer benefits and is marred by “loopholes.”
Newly Elected Louisiana Insurance Commissioner’s Solutions Differ from His Predecessor’s
Louisiana’s newly elected insurance commissioner, Tim Temple, said the state desperately needs more insurance capacity for its property market, but he is ruling out the insurance incentive program touted by his predecessor, Commissioner Jim Donelon.
Donelon’s program allocated millions in taxpayer money to incentivize carriers to enter the market and write more coverage in southern Louisiana, where Louisiana Citizens Property Insurance Corp. is the only option for coverage in many places.
Temple ran in part on fixing the insurance market in Louisiana, which is experiencing a capacity shortage and high premiums following hurricane losses in 2020 and 2021. According to Insurify, an insurance comparison website, Louisiana is now the third-most expensive state for insurance. The average annual premium in Louisiana is $5,353, three times the national average homeowners insurance cost.
Mandating rate reductions is also not among Temple’s plans, who said that would simply drive more carriers out of the state. “We want the affordability, but you can’t have affordability until you have availability,” he said.
Regulation, Legislation and Legal Reforms
Temple has committed to revitalizing the homeowners insurance market through regulatory, legislative, and legal reforms. According to the Pelican Institute, Temple proposes revising or removing the state’s “Three Year Rule,” which directs insurers on how to manage client relationships, and deregulating and simplifying the state’s rate filing process. Louisiana insurers must follow a set of restrictions that prohibit them from adjusting their rates more than once a year and obtain departmental clearance before changing any of their policies.
Temple and other groups are also urging lawmakers to change the state’s “bad faith” law, which sets up a framework for homeowners to sue carriers for considerably more than their claim is worth. Instead, Temple has advocated for bad-faith regulations that enable insurers to challenge lawsuits. Others have indicated interest in revising the state’s premium tax, which is passed on to customers.
Carriers Requesting a 42% Rate Hike in North Carolina, Commissioner Asks for Public Feedback
Insurance carriers requested a 42% rate hike statewide and a 99% increase for property owners along the North Carolina coast. The North Carolina Department of Insurance (NCDOI) held a public hearing on January 22 to address the proposed rate hike and ask for public feedback. People traveled across the state to voice their concerns, saying that even a single-digit increase is too much.
“This request impacts us in an insane manner,” said John Davis, mayor of Swansboro in eastern North Carolina. He noted proposed rate hikes of 99.4% in nearby beach communities would be impossible for some property owners to afford.
The increase should be rejected even if it is a negotiating ploy to get a rate increase of 10% to 20%, he said.
The NCDOI said the potential rate hike is a balancing act of ensuring consumers pay a fair amount and carriers continue doing business in the state.
Commissioner Causey Issues Statement
After the hearing, Commissioner Mike Causey issued the following statement to clear up any confusion regarding the recent filing made by insurance companies:
“Many North Carolina citizens have already told me how worried they are about the recent filing made by the N.C. Rate Bureau requesting an increase to homeowners’ insurance rates, and they’ve got good reason to be concerned…First let me be clear – the Commissioner of Insurance in North Carolina does not set insurance rates. The Rate Bureau is an organization created by the N.C. General Assembly. The insurers in the State that write certain lines of personal insurance, including homeowners and automobile, are the members of the Rate Bureau. It is the Rate Bureau, and not the Commissioner of Insurance, that submits proposed insurance rates to the Department of Insurance for consideration.
“Under our laws, the Commissioner has 50 days from the filing date to review the Rate Bureau’s proposal to determine whether it meets certain very technical, mathematical standards. In addition, during this 50-day review period, the public may submit comments on the Rate Bureau’s proposal. Consumers can do so by submitting those comments in writing to us via mail or e-mail by February 2.
“I also scheduled a public comment forum that took place today as another way for the public to express their views, and some speakers at that forum said that I should have attended. But the Rate Bureau has accused the Commissioner of Insurance in the past of prejudging a rate request before a notice of hearing may be issued. So, it is important that I not appear to have prejudged the request before our review is complete. However, I have heard the comments today and the countless comments submitted by our citizens, and I take them all very seriously.”
Many homeowners in North Carolina are still adjusting to the increase in 2022, which came after a 2020 rate hike request by the insurance industry. Insurance companies requested an average 25% rate hike statewide at that time. Causey agreed to an 8% statewide increase, on average.
Conclusion
For these elected commissioners, it’s a balancing act to represent the voters who put them in their positions while addressing the growing insurance crisis in their states.