Gov. Newsom seeks faster review of insurance rate hikes. What to know
With insurers continuing to pull back from the California’s homeowners’ market, Gov. Gavin Newsom wants to speed up the process by which the companies have their requests for rate hikes reviewed.
The governor said Friday that he is backing a bill that would require the Department of Insurance to complete reviews of proposed premium increases within 60 days to halt any more exits from the market. Here’s what to know:
What exactly did the governor say?
Newsom said that immediate steps need to be taken to stabilize the market, which has seen insurers not renew existing policyholders, stop writing new policies or pull out of the market entirely — sending many homeowners to the insurer of last resort, the state’s FAIR Plan, which is now on the hook for more than $300 billion in payouts. Newsom said he was “deeply mindful†of the burdens placed on the plan.
Major insurers have pulled back from California’s homeowners market, citing wildfires, inflation and other challenges. But there are steps at-risk homeowners can take now to secure coverage and at lower prices.
The governor said he had considered issuing an executive order, but instead is proposing a bill that would require the Insurance Department to speed up its review process of premium rate-hike requests.
“We need to stabilize this market. We need to send the right signals. We need to move,†he said.
Isn’t there already an insurance reform package being hashed out in Sacramento?
Insurance Commissioner Ricardo Lara is holding hearings on his Sustainable Insurance Strategy, a set of comprehensive regulations intended to stabilize rates and make it more attractive for insurers to write homeowners policies, especially in wildfire areas such as hillsides and canyons.
However, these regulations won’t become law until the end of the year — a deadline sought by the governor, assuming it can be met.
“It should not take this long for emergency regulations,†Newsom said. “We can’t wait until December.â€
How would this bill fit into the larger set of reforms?
Lara has reached a grand bargain with the insurance industry to make the market more attractive, though details are still being worked out.
The plan would allow insurers to include the cost of reinsurance they buy to protect themselves from large fires and other catastrophes into premium costs. It also would allow them to set rates using sophisticated algorithms to predict the risk and cost of future fires, rather than just base them on past events. It’s unclear how an insurer’s application for an expedited rate approval this year would fit into the proposed reforms.
Has Lara reacted to the governor’s proposal?
The commissioner tweeted Friday that his department has taken “significant steps forward†to implement his planned reforms but more needs to be done — and that his department is working with the governor and the Legislature “on critical budget language that keeps us on track to get the job done.â€
What do consumer groups have to say?
Jamie Court, president of Consumer Watchdog, said he didn’t understand the proposal, worrying that it would be a “rubber stamp†on proposed rate increases.
He noted that Proposition 103, the landmark 1988 initiative that gives the insurance commissioner authority to review rate hikes, already mandates that they are conducted within 60 days except in certain circumstances. Those circumstances include requests for rate increases exceeding 7% for homeowners insurance, which allow consumers to seek a hearing, or the commissioner’s own decision to conduct a hearing.
What is the insurance industry’s reaction
Rex Frazier, president of the Personal Insurance Federation of California, a trade group of property and casualty insurers, said despite the promise of 60-day rate reviews under Proposition 103, they are taking longer. He said the Insurance Department will often request that insurers waive their rights to a speedy decision or face an administrative hearing, which can lead to extensive delays. However, Frazier withheld comment on the governor’s proposal until the draft language is released.
What are the next steps?
Newsom’s office will release the draft bill, which will be carried by a member of the Legislature and be included in the process for adopting the state budget, which the Legislature must approve by June 15. Newsom made his remarks Friday in outlining plans for a revised $288-billion budget, which calls for a series of cutbacks to close a nearly $45-billion shortfall.
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