California is trying to lure State Farm and Allstate back with lenient policies

Good morning. It's Friday, March 29th. Here's what you need to know to start your day.

California intends to attract insurers again with flexible policies

California's homeowners insurance crisis worsened last week when State Farm General Insurance announced it would not renew 72,000 homeowners' insurance policies statewide. These policies are scheduled to be rescinded by the summer.

It's not just a state farm.

Other insurers, such as Allstate and USAA, quickly halted new business in the Golden State, blaming increased risks from insuring homes in the state's increasingly dry, fuel-rich, fire-prone forests. We may be heading towards an “uninsurable future.”

Weeks ago, the California Department of Insurance, or CDI, proposed a regulation that would allow insurers to use catastrophe models — computerized processes that simulate potential catastrophic events — to consider the expected impacts of climate change when requesting a rate increase.

California hopes this will help attract insurance companies again.

If approved, insurers could submit catastrophe models of wildfires, floods and terrorism to CDI and use predictions from those models to justify rate increases.

The state had already struck an agreement in September to allow insurers to pass on the costs of reinsurance policies — which they use to help cover their losses after major disasters — to customers in exchange for insurers returning to high-risk fire areas in California's hills. And the valleys. The changes are scheduled to take effect by the end of 2024.

Under Proposition 103, the state law governing the insurance industry, companies were prohibited from passing on reinsurance costs to customers and were required to set rates based only on historical fire data.

CDI believes changing this policy will provide more stable costs than current regulations, which have resulted in sudden and sharp increases for those most at risk from wildfires.

But advocates say disaster modeling isn't always fair

Consumer Watchdog, an advocacy group, opposes disaster modeling, calling it a violation of Proposition 103, and claiming the policy appears designed to restrict public access to information about how the models affect rates.

“Catastrophe models are wildly inconsistent and unreliable, which is why public review and transparency are key before insurers are allowed to use them to raise interest rates,” the group wrote in a statement.

The regulation proposal is part of Insurance Commissioner Ricardo Lara's Sustainable Insurance Strategy, a package of executive actions aimed at improving insurance options and addressing the long-term sustainability of California's insurance market.

Gov. Gavin Newsom issued an executive order in September ordering the Insurance Commissioner to “take swift regulatory action to strengthen and stabilize California’s marketplace.”

“This case is not just a yellow flag; It waves a red flag,” Newsom said at New York City Climate Week in September, speaking about the Legislature’s failure to address the slow collapse of the property insurance market.

Insurers leaving the state has put additional pressure on the option of last resort for many homeowners

State Farm — the state's leading home insurer — had already announced last June that it would stop offering new title policies in the state due to “rapid exposure to catastrophes and a challenging reinsurance market.”

USAA and Allstate followed suit. Farmers limited the number of new policies written per month. Travelers and Nationwide have imposed new restrictions, making it difficult for new customers to qualify for policies.

“This could be the beginning of a market collapse that would leave millions stranded without affordable insurance, their homes burned to the ground,” Times reporter Sam Dean wrote last summer.

The dearth of insurance options has prompted thousands to buy limited insurance from the Fair Access to Insurance Requirements plan, or FAIR plan, with 350,000 Californians covered as of January 2024. The fund is an insurance pool of last resort that California requires insurers to contribute to. On market share statewide.

However, the huge jump in enrollment from just under 273,000 two years ago has strained the state insurer financially. Chairman of the FAIR Plan Assn. He warned lawmakers that the organization may not be able to financially survive the disaster.

California residents need insurance. Insurers can afford more, advocates say.

Insurance remains the safest protection against personal catastrophes, climate-related or otherwise, Times columnist Anita Chhabria wrote last year. State residents need insurance companies to stay in the market.

Chhabria said climate change should not be a free pass to gouge consumers. Despite the aforementioned disaster claims, she noted that insurance companies are still making money, albeit with worse profit margins than in the past.

During discussions last summer about forward-looking models, Harvey Rosenfeld, founder of Consumer Watchdog, stated: “This has nothing to do with climate change; it has to do with industry greed and its 35-year—and so far unsuccessful—campaign to escape the requirements of Prop 103.”

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