As some Californians continue scrambling for ways to affordably insure their homes, Gov. Gavin Newsom on Friday announced a push to expedite how quickly insurance companies can increase rates.
Speedier approvals for rate hikes is one of the key reforms insurers say is necessary for them to stay afloat amid a growing number of costly claims in the Golden State, especially tied to recent wildfires and other mounting costs of climate change.
Newsom said he is drafting a “trailer bill” that could cut the current approval process down to 60 days — legislation he hopes will quell an exodus of insurers bailing their business out of California and soothe residents’ financial anxieties around canceled policies.
The current process allows the Department of Insurance up to 84 days to approve filings for insurance rate increases, but that timeline can take substantially longer if a public hearing is requested by consumer advocates or other groups.
“We need to stabilize this market,” Newsom said during a Friday press conference about his revised budget proposal. “We need to send the right signals, we need to move.”
While this change may temporarily usher in more expensive bills for consumers, proponents argue the changes will make home insurance more available. In turn, more options may also allow residents to avoid taking their chances with California’s “FAIR Plan,” the state’s “insurer of last resort,” which offers exorbitant premiums compared to regular insurance, and is also inching towards insolvency.
Denni Ritter, the American Property Casualty Insurance Association’s department vice president for state government relations, praised the news about expedited approvals Friday afternoon.
“Expediting the rate review process is a vital component to addressing California’s insurance crisis,” Ritter said in a statement. “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.”
The governor said he opted to work with state lawmakers on this “trailer bill,” rather than pursue an executive order to move the process along.
California’s Insurance Commissioner, Ricardo Lara, started working with Newsom last fall to modernize and overhaul three decades of state’s regulations, including efforts to allow insurance companies to use catastrophe models to set rates, as well as bill consumers for the costs of reinsurance, which is insurance for insurers.
Lara said that ongoing work, however, isn’t expected to materialize until December.
That timeline isn’t fast enough in the governor’s eyes. If Newsom’s bill is passed within the state’s budget for 2024-25, it may take effect as early as July 1.
“(Lara’s) team is working their tails off, I know how concerned the legislature is on this,” Newsom said. “But December? I don’t think we have that much time.”
Rather than push back on Newsom’s announcement of his new bill, Lara thanked the governor’s support of his own effort, which has been dubbed the Sustainable Insurance Strategy.
“Newsom is right: time is of the essence,” Lara posted to X, formerly Twitter, on Friday. “Our partnership with the Governor and Legislature are essential to stabilizing our market. We’ve taken significant steps forward, but there is more to do.”