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- Insurance Commissioner Ricardo Lara has been grappling with the troubled market for his six years in office, and now his controversial plan to reform it will be put to the test after the costliest wildfires in the state’s history.
- Lara’s plan to make homeowners insurance more available gives insurers financial and policy concessions in exchange for a pledge to write more policies in risky neighborhoods.
- But consumer groups and others say the commissioner is too close to the insurance industry. Lara disputes the claim and argues that he does not have power to force insurers to write policies.
It has been more than a month since the harrowing wildfire swept through Pacific Palisades, and Marc Hara knows he should be grateful.
After all, he and his fiancée managed to escape the blaze that leveled their condominium complex. But Hara, who is living at a relative’s house, is far from sanguine about his future.
Not only were all his possessions destroyed, but Hara figures the couple is out $170,000 after State Farm dropped him as a policyholder — something he only learned later, he said, after realizing the insurer mailed a nonrenewal notice for his interior coverage to an old address.
“My home is completely gone. We have absolutely nothing left,” said the 58-year-old physical therapist, who had recently remodeled his condominium and is now seeking FEMA disaster assistance. “I’m so screwed.”
California’s Fair Plan, the state’s insurer of last resort, may be unable to pay billions in claims arising from the Los Angeles fires and may require a bailout that could ultimately be paid by homeowners statewide.
Citing privacy policies, State Farm declined to discuss Hara’s situation, other than noting it sends nonrenewal notices in advance to the address on record it has for policyholders.
The frustrations voiced by Hara echo those of many other homeowners in the Pacific Palisades and Eaton fire neighborhoods who were dropped by their insurers as they retreated from fire-prone areas. Some enrolled in the state’s insurer of last resort with more limited coverage. Others, like Hara, might have had no coverage at all or couldn’t afford to pay higher premiums.
The devastation caused by the twin blazes has exacerbated a crisis in the insurance industry and raised fresh questions about whether the state — and its top insurance regulator, Ricardo Lara — has done enough to protect homeowners from not having adequate insurance to cover their losses.
The former legislator from southeast Los Angeles County has been grappling with the troubled market for his six years in office, and now his controversial plan to reform it will be put to the test after the costliest wildfires in the state’s history.
Damages from the blazes are expected to cost insurers as much as $45 billion. State Farm, the largest home insurer, has already asked for an emergency 22% rate hike due to the fires. Lara turned down the request last week, pending more evidence from the insurer.
Lara’s plan to make homeowners insurance more affordable and available, which was enacted last year, is largely based on a carrot-and-stick approach that gives insurers financial and policy concessions in exchange for a pledge to write more policies in risky neighborhoods.
But consumer groups, a former insurance commissioner and others say the commissioner is too chummy with the insurance industry. He has received past campaign contributions from insurers and held closed-door meetings with them as he hashed out his reforms.
“His regulations and his policies are clearly ones that the insurance industry wants,” said Rep. John Garamendi (D-Fairfield), former state insurance commissioner. “Your job is to hold the companies accountable, and he seems to be doing the exact opposite, and that is giving the companies whatever they want.”
Lara disputes the claim and disagrees with Garamendi that he has the power to force insurers to write policies.
“It would only exacerbate the problem at a time when insurance companies are pulling out of California,” he told The Times. “And, quite honestly, you know, this is not going to be the first or last time that I get white mansplained on how to do my job.”
Working-class roots
Lara, 50, has vaulted to the top ranks of state officials from humble origins.
He is the child of a seamstress who overstayed her visa, and a father who swam across a canal to come to America from Mexico, getting his first job as a teenager on a farm near Fresno.
“I can’t help but think of my parents, when I hear such hate from people who don’t understand the price paid by immigrants,” Lara told The Times in a 2013 profile.
The first in his family to earn a college degree, he organized rallies against Proposition 187, which sought to punish undocumented immigrants, and was elected student body vice president at San Diego State.
After a stint working for Democratic legislators, Lara established a progressive reputation, first in the Assembly and then in the Senate, where he represented Bell Gardens and other southeast county cities.
He introduced bills backing healthcare for undocumented immigrants, restoring bilingual education and punishing the Boy Scouts for their stance on gays — reflecting his support of LGBTQ rights. (He boasts of being the first openly gay person elected to statewide office.)
Before the devastating fires burned across Los Angeles, many homeowners learned they were losing their insurance policies. Some faced big increases in premiums that they couldn’t afford.
Before his run for commissioner, he co-authored legislation that gave the position authority to ban cancellations and nonrenewals after big fires, a power he has wielded after the L.A. County fires.
Campaign contribution scandal
But after edging former Insurance Commissioner Steve Poizner in the 2018 general election, Lara was soon engulfed in a scandal.
Lara had pledged not to take any insurance industry contributions. Yet, he received at least $270,000 from 56 people and companies for his 2018 campaign and 2022 reelection committee from insurers, bail agents, pharmacies and others either regulated by the department or with insurance interests, according to a series of stories in the San Diego Union-Tribune.
He also was accused on intervening on behalf of a workers compensation insurer seeking state approval for the sale of a subsidiary. Lara denied wrongdoing but returned $83,000 in insurance industry contributions dating back to his first term as a senator in 2013 — and issued an apology.
“Even though no laws or rules were broken — and these interactions did not affect or influence my official actions in any way — I must hold myself to a higher standard,” Lara wrote in a letter to three consumer groups in 2019. “I can and will do better.”
It was the biggest scandal involving a state insurance commissioner since Chuck Quackenbush resigned in 2000 over allegations he funneled settlement funds from insurers accused of mishandling Northridge earthquake claims into foundations for his benefit. He denied any wrongdoing.
Criticism of Lara’s ties to the industry persisted.
In 2022, Consumer Watchdog said Lara and independent campaign committees working on his behalf attempted to conceal $122,500 in contributions from insurance industry interests to support his reelection, according to a complaint filed with the Fair Political Practices Commission.
The complaint was closed last month after the agency found “insufficient evidence” that there was a violation of state law.
Lara said the donations were given to committees over which he had no control. He called the complaint a “political tactic” by the consumer group, which disagrees with the agency’s decision.
Consumer Watchdog and others have questioned Lara’s frequent meetings with insurance industry representatives.
The commissioner met with property insurers and industry officials more three dozen times since 2020, including State Farm, Farmers and industry trade groups, according to his public calendar.
Insurance department records reviewed by The Times were redacted and did not reveal many details of the meetings, which were typically called to discuss the state of the home insurance market and a company’s plans and financial condition.
Representatives of Los Angeles-based Farmers Insurance met with Lara at least eight times, more than any other company, insurance department records show. Raul Vargas, appointed chief executive of Farmers three years ago, defended the company’s outreach.
“Me and my team have met with him and his officials to discuss solutions. That’s a recurrent process,” Vargas said. “[In] states where we are big, I try to meet the commissioners.”
Lara said it would be a “dereliction on my duty not to meet with the entity that I regulate,” adding that he has met with thousands of residents, business owners and others in statewide public meetings during his tenure. No other commissioner “has done the amount of outreach I have done.”
Brewing wildfire insurance crisis
Tensions between Lara and his critics began shortly after he was first elected in 2018. That was the same year the Northern California town of Paradise burned nearly to the ground, causing $12.5 billion in insured damages.
The conflagration was the most costly wildfire in U.S. history at the time, serving as a wake-up call for many that climate change had irrevocably altered the home insurance landscape in California, prompting insurers to lighten their rolls and reduce their risk.
Allstate and State Farm eventually stopped selling new home policies. Desperate homeowners flocked to the FAIR Plan, an insurer of last resort operated by licensed carriers that offers limited coverage.
To address the crisis, Lara sponsored a bill in 2020 that would have required insurers to renew and write new policies for homes that met new fire-safety standards. Opposed by the industry, it didn’t get past its first committee.
“We couldn’t even get a vote for that bill. That was the political reality at that time, and that’s why we then said, “OK, let’s move into a regulatory approach to get this done, where I have more authority,” Lara said. “We brought everybody together and created the Sustainable Insurance Strategy.”
Lara started with a program to give homeowners a premium discount if they installed a Class-A fire rated roof, ember resistant vents and took other safety measures. But the program doesn’t require insurers to write policies even after expensive upgrades.
“If I were on a fixed income, this could literally drive me out of house and home,” wrote Poizner, the former insurance commissioner, in a 2022 opinion piece in The Times. He shared his own experience of being dropped by his insurer despite making improvements to his house and then seeing his premium rise fourfold with another insurer.
Controversial reform plan
The following summer word leaked that negotiations were taking place behind the scenes in Sacramento for legislation that might solve the crisis — and that insurers were on board.
It called for speeding insurer rate reviews, using proprietary computer programs called catastrophe models to better predict fire risk and — unprecedented in California — allowing insurers to charge state policyholders for the costs of reinsurance, which is typically bought from unregulated multinational companies to limit disaster costs.
Additionally, insurers would have to write policies in fire-prone neighborhoods equivalent to 85% of their market share. State Farm, with a 20% market share in 2023, would be expected to cover 17% of the homes.
Edison generates billions of dollars in revenue every year and has a history of passing along the costs of disasters to customers. How will it handle the financial fallout of the Eaton fire remains an open question.
It further allowed for surcharges on homeowner policies statewide if the FAIR Plan is threatened with insolvency.
Consumer Watchdog called the proposals a “massive bailout and deregulation scheme” that could result in 40% premium hikes. And the legislation never got off the ground.
Still, Gov. Gavin Newsom backed Lara, issuing an executive order giving him the authority to use “emergency regulatory action” to fix the dramatically worsening market. Lara announced he would fully enact his Sustainable Insurance Strategy, by the end of last year.
The move rankled some Democrats, however. More than 30 members of Congress, led by Garamendi, sent Lara a letter criticizing the strategy and informing him that he already had the power under Proposition 103 to “require that the insurance industry provides adequate and affordable coverage in every part of the state.”
The 1988 ballot measure established the post of an elected insurance commissioner with the authority to ensure rates are neither “excessive, inadequate or unfairly discriminatory.”
Garamendi went further and urged Lara to resign if he wouldn’t take tougher measures, calling into question his incentive strategy, which allows insurers to increase policies in fire-prone neighborhoods by just 5% annually.
“I don’t see how it works, because there are no real enforcement mechanisms,” Garamendi told The Times. “Can Lara force companies to go into areas where they don’t want to go? The answer is yes, he can...If they say ‘no,’ you say, ‘Well, I’m going to pull your certificate, and you’re not going to sell in California.’”
Lara said that approach would only cause insurers to exit the state. Instead, he said his department will strongly enforce the new regulations, which require a “good faith” effort by insurers.
“My job is to keep insurance companies accountable, to make sure consumers are protected,” he said.
Lara is not without his supporters, including the California Farm Bureau and environmentalists, who say climate change has rewritten the rules on insuring for risk.
Carolyn Kousky, an associate vice president at the Environmental Defense Fund, said catastrophe models and the availability of passing on the costs of reinsurance to consumers are critical for insurers as climate change heightens the cost of disasters worldwide.
“There’s a lot of worry that the Sustainable Insurance Strategy is going to lead to higher prices, and it probably will, but part of that is because the risk of wildfires is really high, and it’s very difficult to offer lower cost insurance when risks are high,” Kousky said.
In December, Mercury Insurance said it would start writing policies again in Paradise, while Farmers announced it would write more home policies, with both citing Lara’s reforms as a factor in their decision.
“I think he’s tried to compromise with a variety of stakeholders,” said Victor Joseph, president of Los Angeles-based Mercury.
But Lara’s reforms have escalated long-standing tensions between the commissioner and Consumer Watchdog, whose founder, Harvey Rosenfield, wrote Proposition 103, which includes a provision that pays consumer groups their costs for participating in rate reviews.
The two sides have traded barbs over the compensation the group has received and how much money Consumer Watchdog has saved consumers by forcing cuts in proposed rate hikes, with Lara calling the proposition outdated and in need of his reforms.
But Rosenfield believes the attacks are an attempt to do away with Proposition 103 — despite insurers making underwriting profits on California home policies over the last decade with the exception of two tough fire years, according to ratings agency AM Best.
“Basically, insurers hold the state hostage to their demands, and Lara pays the ransom, giving them everything they wanted,” he said. “Suddenly we have these terrible fires — and now what? That’s the problem we are facing now.”
Times staff writer Summer Lin contributed to this report.
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