The timing of the devastating Los Angeles wildfires in January could not have been more critical for California Insurance Commissioner Ricardo Lara. The blazes erupted just as his controversial overhaul of how insurers calculate premiums was taking effect, creating a complex situation.
On one hand, the disaster seemed to validate the insurance industry’s argument that the state’s susceptibility to such catastrophes creates immense potential losses that cannot be insured profitably without changes in the current system. However, as fire victims filed claims, Lara faced pressure to hold companies accountable for minimizing or delaying settlement payments. Simultaneously, critics accuse him of being too close to the industry he regulates, as detailed in a recent Los Angeles Times article. It is, to put it mildly, a challenging situation for the commissioner.
Lara, elected in 2018, began drafting his new regulatory plan due to decisions by major insurers to reduce or eliminate policies in California because of an unending string of destructive wildfires. These insurers contended that California’s existing system for calculating premiums, based on past experiences, was not adequate and wanted to incorporate estimates of future exposure, along with the costs of reinsurance, into their calculations.
Lara incorporated these changes into his plan, but only if insurers were prepared to write policies in fire-prone regions. “Giving people more choices to protect themselves is how we will solve California’s insurance crisis,” Lara said, according to the article, upon releasing details of the plan. “For the first time in history we are requiring insurance companies to expand where people need help the most. With our changing climate we can no longer look to the past. We are being innovative and forward-looking to protect Californians’ access to insurance.”
His plan drew sharp criticism from Consumer Watchdog, a Southern California organization instrumental in authoring the 1988 ballot measure that made the insurance commissioner’s position elective and increased regulatory powers. The group, which had been critical of Lara since his election, accused him of accepting campaign money from insurers and not adequately overseeing their operations. The group had previously benefited from “intervenor fees” awarded by prior commissioners in rate-making cases. While Lara’s organization received $643,530 in 2024, representing 100% of the year’s awards, they have been less generous.
The Los Angeles fires forced Lara to balance his long-term efforts to stabilize the insurance market with immediate responses to the disaster’s issues. He authorized insurers to impose assessments on policyholders to bolster the shaky finances of California’s FAIR plan, a last-resort system for property owners unable to obtain coverage from the regular market. However, he refused to immediately approve a request by State Farm, California’s largest insurer, for a 22% emergency rate hike, stating the company needed to demonstrate the need.
Above all, the Los Angeles fires underscored the vital role of a healthy insurance market. It is not only important in protecting the investments Californians have in their homes and businesses but also as a key component in real estate transactions. Lenders will not issue mortgages for uninsured properties.
The insurance commissioner must protect consumers’ interests, and the health of the insurance market is central to that. A parallel duty is making insurance profitable enough to keep those insurers willing to conduct business in California. It remains uncertain whether Lara’s rate-making overhaul will deliver on both imperatives. He deserves credit for attempting to fix a dysfunctional system, a task given to him after the Legislature and Gov. Gavin Newsom stepped aside.
