Gov. Gavin Newsom’s new proposal to speed approval of rate hikes for most types of property insurance and help stabilize a collapsing market will cost Californians billions of dollars, consumer advocates said Wednesday.
Insurers contend the plan language released announced Tuesday evening — which affects home, rental, vehicle, boat and small business policies — would help fix the state’s wildfire-linked insurance crisis that has seen rates climb, coverage dramatically shrink and insurers flee the state.
Newsom’s plan would impose a hard 120-day deadline for the state Department of Insurance to approve or deny insurance companies’ applications to raise premiums. Although the process is by law supposed to take only 60 days, the department routinely receives insurers’ consent to waive that deadline to allow its staff to conduct a review, so it can take more than two years, said Carmen Balber, executive director of Consumer Watchdog, a consumer advocacy group.
“The governor’s plan invites insurance companies to set their own prices” and would “cost insurance consumers billions in savings from future public rate challenges,” Balber said. “The idea that this is a quick fix that’s going to right California’s insurance market is a pipe dream.”
Forcing decisions within 120 days would hamper consumer groups’ ability to provide effective input into the process and challenge attempts to raise rates — oversight that has saved California consumers $6 billion since 2002, Balber said. Consumer Watchdog’s founder authored the state’s voter-approved insurance regulations.
The new time limit would also cut the state’s ability to properly examine rate-increase applications, and insurers would have little incentive to answer questions and provide data when the insurance department must issue a decision within 120 days, Balber said.
Alex Stack, a spokesman for Newsom’s office, said Wednesday that the proposal requires the Department of Insurance to “modernize and streamline its rate application process” to comply with the expedited timelines imposed by 1988’s Proposition 103.
“It makes no changes to the rules in Prop 103 for how much an insurance company can charge, which continues to be that rates cannot be ‘excessive, inadequate, or unfairly discriminatory,’” Stack said. “This is part of our larger package of solutions to ensure Californians have adequate access to insurance and combat market exodus that hurts consumers.”
California’s insurance industry has melted down in the wake of massive wildfires in recent years that have led to billions of dollars in claims. A year ago, the state’s largest insurer, State Farm, said it would stop offering new property insurance in California, and in March, the company said it would not renew 72,000 policies statewide, including thousands in the Bay Area.
Many other major insurers have limited coverage, particularly in areas of high fire risk. The crisis has pushed thousands of homeowners into the state-mandated FAIR Plan, the costly insurer of last resort backed by a pool of property insurance companies which face skyrocketing liability exposure.
Last fall, California’s elected insurance commissioner, Ricardo Lara, spurred by Newsom, announced a plan that met several insurance industry demands, including quicker approval for rate increases in exchange for a commitment to offer coverage in fire-risk areas.
Lara promised changes by the end of the year, but Newsom at his May budget presentation said, “I don’t think we have that much time.” His proposal released Tuesday would add the proposed changes to the budget as a “trailer bill” to be voted on next month, possibly bypassing committee hearings in the Assembly and Senate.
“The timeline on this and whether or not it’ll go through committee will be worked out with the Legislature,” Stack said.
Officials at the Department of Insurance had no immediate comment.
Insurers said Wednesday that they were “evaluating the language” of the governor’s proposal but that it addresses a critical need.
“Year-long delays in the rate-approval process have created a significant market imbalance – forcing more than half of the state’s top 15 insurers to restrict new policies or exit out of the market entirely,” said Denni Ritter, vice-president for state government relations at the American Property Casualty Insurance Association. “Streamlining approvals is key to modernizing our regulatory system and fixing the California insurance crisis.”
State Sen. Susan Rubio, chair of the Senate Insurance Committee, on Wednesday applauded Newsom’s “proposal to help reduce unnecessary red tape,” and said she looked forward to working with his administration and the Legislature to pass laws that would stabilize the insurance market and “result in more accessible and affordable insurance coverage for California consumers.”
Balber, however, doubts whether Newsom’s plan would deliver the results consumers need, especially given the nationwide cost increases and FAIR plan liability insurers are facing.
“There is no reason to think that this change will change the access and affordability crisis that we’re facing in California,” Balber said. “Insurance companies want faster, higher rate increases but there’s no reason to think that that’s going to bring them back into the market.”
