An Update on the Sustainable Insurance Strategy

On December 13, 2023, Insurance Commissioner Ricardo Lara addressed the Assembly Insurance Committee at Pasadena City Hall. During this address, Lara highlighted California’s position at an ‘insurance crossroads’ and an ‘insurance emergency’ for many residents. He acknowledged the shortcomings of the current system in addressing modern challenges. He emphasized the pressing need for reforms to fortify and sustain the insurance market, ensuring the protection of Californians against evolving risks.

In his address, Commissioner Lara outlined a series of strategic initiatives essential to his Sustainable Insurance Strategy, a landmark reform hailed as the most significant since the passage of Proposition 103, almost 35 years ago. These initiatives are crafted to address the unique risks faced by Californians today, requiring urgent measures recognized even by the Governor, as outlined in his Executive Order issued on September 21st.

Key Components of Commissioner Lara’s Sustainable Insurance Strategy:

Streamlining the Rate Application Process:

Lara’s strategy involves enhancing the efficiency of rate applications. Collaborating with insurance companies and intervenors, the focus is on strengthening the rate regulation branch to meet current demands and improve filing procedures. With the department currently reviewing 95 rate and rule filings, this initiative aims to expedite rate applications, crucial for widespread insurance availability throughout the state.

Introducing Risk Management Tools and Commitment to Distressed Areas:

The strategy introduces vital risk management tools, including catastrophe modeling and the net cost of reinsurance. Insurance companies commit to writing at least 85% of homes and businesses in distressed areas. By allowing the use of catastrophe modeling in rate applications, companies gain the ability to anticipate potential catastrophe losses, aligning with California’s goals of fairness, availability, and affordability. Recognizing and recovering California-only net reinsurance costs encourages carriers to re-enter and expand in the California property market, ensuring rates accurately reflect the cost of doing business in the state.

Strengthening the FAIR Plan:

Lara acknowledges the temporary option of shrinking the FAIR plan, making improvements to align with its intended purpose of creating stability in the property insurance market. Significant changes include increased coverage limits, acceptance of monthly and credit payments, and coverage expansion to farm buildings. Plans are underway to increase coverage for larger homeowners’ associations, condo associations, farms, and businesses, reflecting a transformative phase for the FAIR plan in addressing the evolving needs of Californians.

Commissioner Lara’s Sustainable Insurance Strategy is not a top-down approach but is rooted in a comprehensive assessment of today’s insurance landscape, shaped by valuable input from diverse stakeholders, such as wildfire survivors, ranchers, farmers, supportive housing groups, realtors, homeowners and condo associations, new home builders, and other individuals most impacted by insurance matters.

Lara is committed to urgency and deliberation, basing decisions on factual analysis. This approach ensures that the reform is driven by public benefit. The commissioner affirms, “We are moving with urgency and deliberately, based on the facts, and we won’t be pressured by entrenched groups seeking to defend a broken status quo that puts their interests ahead of the public’s benefit.” This resolute stance signifies a transformative era for insurance in California, prioritizing the needs and interests of its residents.

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