California Legislators Seek to Mend ‘Shambles’ of Insurance Market
California lawmakers are urgently proposing solutions to the state’s troubled insurance market, which has been exacerbated by recent devastating wildfires. The proposed measures include increased oversight of the FAIR Plan, streamlined claims processes, and potential tax relief for homeowners facing soaring insurance premiums.
Image Caption: A wildfire scene, illustrating the type of event contributing to California’s insurance crisis.
Furthermore, legislation is under consideration that would allow lawsuits against fossil-fuel companies for climate-related disasters.
The fires that ravaged areas like Altadena and Pacific Palisades in the Los Angeles area have cast a harsh spotlight on the state’s ongoing insurance crisis. In response, lawmakers have introduced a variety of bills, some of which are unprecedented.
The ‘Fire-Insurance Provider of Last Resort’
One of the key proposals involves the FAIR Plan, the state’s fire insurance provider of last resort. This measure would place the state’s top two lawmakers on the governing committee of the FAIR Plan, an association of insurance companies mandated to offer fire insurance to property owners who cannot secure it elsewhere.
According to the FAIR Plan, it faced the risk of financial insolvency due to claims from the Los Angeles-area fires and requested a $1 billion lifeline. Its member insurance companies were on the hook for that amount and could potentially pass on up to half of the cost to their customers.
The FAIR Plan has become increasingly important in recent years as traditional insurance companies have reduced or ceased writing new policies in California. As a result, state officials are highly invested in the plan’s stability and its capability to serve a growing customer base. Currently, the FAIR Plan is managed by a team accountable to the pool of insurers, not the state.
Assembly Bill 234, authored by Assemblymember Lisa Calderon, a Democrat from the Los Angeles area, aims to enhance the FAIR Plan’s operations and improve customer service by adding state officials to the governing committee. The legislator expressed concerns that “the association has grown to such an extent that its financial capacity to pay claims after a catastrophic fire is unlikely,” and stressed the “increased transparency is imperative.”
Calderon’s bill calls for the Speaker of the Assembly and the chairperson of the Senate Committee on Rules to become non-voting members of the FAIR Plan’s governing committee. Insurance Commissioner Ricardo Lara supports the bill, although he has limited authority over the plan. According to FAIR Plan spokesperson Hilary McLean, the FAIR Plan has not taken a formal position on the legislation.
If the bill passes, California could be the first state to include lawmakers on a FAIR Plan board. Stephen Jablonski, president of Property Insurance Plans Service Office, a nonprofit that tracks state residual property insurance plans, noted that several states have insurance department representatives on similar boards.
The California FAIR Plan has not disclosed the members of its governing board.
Concerns Regarding the FAIR Plan
Concerns about the FAIR Plan extend beyond its financial stability. As the provider of last resort, the way it serves its customers has repeatedly come under scrutiny. One notable case involved Betty Ryder and her husband, who discovered they were uninsured for their home despite paying premiums. Ryder’s experience highlighted issues with payment processing and policy cancellations. After numerous calls and letters, the FAIR Plan reinstated her policy but the couple faced double payments due to issues with their mortgage company.
Lili Thompson, an account manager for an insurance agency in Chico, shared that the FAIR Plan frequently makes errors, leading to challenges in resolving customer issues. Thompson explained that her agency faces issues with accessing billing information and that payments are often misapplied or policies are canceled due to minor balance discrepancies.
Complaints against the FAIR Plan, including delays in payments and poor customer service, have been ongoing. The FAIR Plan attributed similar problems to an increase in volume combined with the transition to a new software system and hiring more staff to help with these issues. Regarding the persistent complaints, McLean referred to “historic growth over the past several years.”
Other Proposed Solutions
Assembly Bill 226 is another measure intended to bolster the FAIR Plan’s financial stability, by allowing it to spread out claims payments over time. This would be achieved by permitting the FAIR Plan to obtain bond financing through the California Infrastructure and Economic Development Bank.
Assemblymember David Alvarez, co-author of the bill, stated that the legislation aims to “maintain insurers in California, and get claims paid in a way that doesn’t cost consumers.”
Senate Bill 495, by Sen. Ben Allen, would set a national precedent by requiring insurers to pay claims in full without an itemized inventory from policyholders. It would also give consumers more time, increasing from 60 to 180 days, to provide proof of loss after a declared state of emergency. Allen explained that getting rid of the inventory requirement “really cuts out an important barrier for a lot of people especially during a very difficult moment.” Lara backs the bill.
Rex Frazier, president of the Personal Insurance Federation of California, is concerned about the bill potentially increasing costs for insurance companies, which could be passed on to consumers, which is why he and his organization oppose the bill.
Insurance Premium Tax Write-Offs
Assembly Bill 1354, proposed by Assemblymembers Heath Flora and Greg Wallis, would allow California taxpayers to write off the rising costs of their fire insurance premiums for the next five years. The tax credits would reduce the amount of personal income taxes. The tax credits would be based on the difference between current premiums and those from 2023, plus additional assessments.
The tax credit would be available to individuals with annual adjusted gross incomes not exceeding $150,000, with a limit of $300,000 for joint taxpayers. Owners of individual homes and properties with four or fewer dwelling units and individual condos and mobile homes would qualify as long as their property values are below $3.3 million.
Flora shared, “Our insurance industry is in shambles right now. For the next few years it’s not going to be great.”
Amy Bach, executive director of United Policyholders, does not support this bill and says that if the state is using taxpayer funds, then it should extract some concessions from insurance companies.
Douglas Heller, director of insurance at Consumer Federation of America, agrees, saying taxpayer dollars would be better used preventing catastrophe and loss in the state.
Fossil-Fuel Company Liability
Senate Bill 222, introduced by Sen. Scott Wiener and other co-authors, would allow insurance companies as well as individuals to sue fossil-fuel companies for damages caused by climate-related disasters. Hawaii is considering similar legislation.
“Disasters that are so much more frequent and so much bigger in scale than five to 10 years ago (are) not random,” said Wiener, who believes that the climate change has been caused by fossil-fuel companies. The goal is that the FAIR Plan and others could try to recoup some of the costs from disasters that have arisen.
The California Business Roundtable, a business group representing insurance companies, has expressed concerns about the legislation, warning that it could lead to higher costs for consumers.
Image Caption: A profile picture of Levi Sumagaysay, the author of the original article.
