California Department of Insurance (CDI) Meeting Extremely Informative, but Concerns About Affordability, Risk Scoring Practices, and Insurance Company/FAIR Plan “Tactics” Remain
The Wednesday, September 18th Topanga Town Council meeting featuring Julia Juarez, CDI Deputy Insurance Commissioner – Community Relations & Outreach, proved very enlightening for those wanting to understand the latest developments regarding the insurance crisis in California. The CDI presentation and subsequent discussion shed a very bright light on both the overt and opaque influences shaping the current proposed reforms. In total, there were approximately 72 people in attendance, with roughly half participating in person and the remaining half online.
Julia Juarez delivered a focused presentation and graciously fielded rapid-fire questions for almost 90 minutes from an audience of highly engaged (and often frustrated) Topangans. She handled all our questions deftly, providing helpful context and examples to make her points. In the few areas where she could not provide an immediate, in-depth answer, she directed people to resources, individuals, or case law for more information. The crowd was duly impressed both by the quality of her responses as well as the effort she made to attend our community meeting in the middle of rush-hour traffic.
Even after the incredibly astute discussion that Juarez led, a few critical open questions remain. We will discuss some of the most salient ones below:
- FAIR Plan customer service — Anecdote after anecdote from locals demonstrated the abysmal customer service that policyholders have received from the FAIR Plan over the past year. Ms. Juarez encouraged residents to submit complaints about any alleged improper treatment by the FAIR Plan to the CDI on their consumer hotline (1-800-927-4357) or by using the Live Chat feature on their website.
Many folks reported doing just that but receiving no actual help after reaching out to the CDI. Because the sheer volume of complaints about the FAIR Plan is staggering, it may be that the CDI is overwhelmed. Regardless, we recommend that residents report any issues (either with the FAIR Plan or any other insurer) to the CDI as well as to our State Legislators (Senator Ben Allen and Assemblywoman Jacqui Irwin). We also encourage you to cc the Topanga Town Council so that we can actively leverage the volume of local complaints to press for substantive changes in the way in which Topangans are treated. We have been extremely active on this front and will not stop until we feel that residents have reasonable options and recourse in front of them.
- Affordability — Residents are already feeling priced out of the market, and that is before the new catastrophe modeling (“CAT Modeling”) rates are allowed to take effect. Prices are expected to soar even higher once CAT Modeling is implemented. One resident, a mother of two in a dual-earner family living in a traditional Topanga home, reported seeing her property insurance rates climb over 400% in one year, from roughly $4,000/year to approximately $17,000 now. That includes FAIR Plan coverage and a wrap-around policy. Her family is feeling the squeeze and worries about how these prices will impact the rest of the community, especially seniors and lower-income individuals and families.
When asked directly why and how such steep price increases could be imposed on any one resident when insurers were supposedly limited to 21% to 34% increases, Juarez explained that the “allowed” rate of increase is applied across insurers’ entire book of business. Hence, some residents will see no increases at all while others may see exponential increases.
In our opinion, such open-ended increases for those of us in higher-risk areas must be looked at much more critically; otherwise, many/most of our residents will be forced out of the area altogether. Even upper-middle-income residents (roughly $160,000 to $350,000/year for Los Angeles) cannot afford these rates, especially if they have a mortgage, car payment, and college tuition among their expenses. If these trends are allowed to continue, only the very wealthy will be able to live in Topanga and much of Los Angeles.
- Wildfire Risk Score – There still seems to be a lot of opacity in what exactly goes into determining one’s risk score. While the elements that go into it are fairly clear, the exact percentages that the criteria are ascribed remain vague. From what we can discern, “location” (i.e. whether or not you are in a High or Very High Fire Hazard Severity Zone) seems to be the single biggest factor. And there is nothing that you can do-short of moving-to change that.
Other steps that residents can take to reduce their score (and cost) include replacing the screens and siding on one’s home, upgrading windows, and ensuring that the vegetation near the home is maintained in alignment with the latest, properly vetted firesafe recommendations. Insurers and the CDI have directed folks to the “Safer from Wildfires” framework for specific guidance on how they can lower their risk scores. Please also consult with the Topanga Canyon Firesafe Council (Ryan Ulyate and Beth Burnam) and Pauline Allen of the Santa Monica Mountains RCD.
Juarez stressed that thanks to California Insurance Commissioner Ricardo Lara’s prior regulatory changes, residents now have the right to officially appeal any wildfire risk scores that they are assigned by their insurers. Residents must also be given a chance to remediate any deficiencies before being dropped or price-gouged by their insurers. Two residents shared their experience with attempting to do just that. One was successful after proving that she indeed had the Class A roof that they required. On the flip side, another resident stated that he was notified about the supposed deficiency on his property after the deadline to “cure” it had already passed and he was subsequently dropped by the insurer.
Many others murmured about similar stealth tactics that had been deployed by their own insurers to essentially deprive them of their rights to appeal their score and/or preserve their covered status. Some had received letters stating that they were being dropped due to an extended vacancy on their property or for other reasons that were either totally or partially inaccurate. Juarez acknowledged that the CDI had received similar complaints from other communities and again urged residents to reach out to the CDI promptly — as there are strict deadlines to appeal — so that they could intervene on the resident’s behalf to ensure that any errors were duly corrected.
While the Town Council finds it frustrating that residents have to jump through such hoops to receive fair and reasonable treatment, we also recognize that this is the system that currently exists, so we must follow the given protocols. That said, Topanga Town Council President Carrie Carrier strongly recommended that the CDI consider adding a penalty or fee structure to the list of tools that it can use with insurers to compel them to follow the rules. Just because we are facing uncertain times should not mean that insurers should be allowed to run roughshod over basic consumer rights and protections.
- Reinsurance – Now that CAT modeling has essentially been greenlit by CA Insurance Commissioner Lara’s office, the final bone of contention seems to be if, and how, insurers will be allowed to include their reinsurance costs in the rates that they charge policyholders. Prop 103 currently prohibits insurers from factoring reinsurance costs into rates, but Lara looks poised to overwrite that provision as part of his regulatory overhaul. While it is true that many other states do allow reinsurance costs to be included in property insurance rates, the concern among consumer advocates (and the Town Council) is that insurers will foist their global reinsurance costs onto California ratepayers, spiking rates even higher. Juarez assured us that the Commissioner is going to try to make sure that only California-area reinsurance costs are incorporated into that additional cost, but we are skeptical that insurers will provide enough transparency around their global book of business to enable us to accurately assess how much of these costs should be apportioned to California. According to industry analysts, it should be noted that wildfire costs constitute only about 5 to 7% of property insurers’ claims/payouts. Floods and stormwater damage are responsible for the vast majority of property insurance claims and losses. Given that reality, the Topanga Town Council is highly concerned that Californians will be forced to absorb the rest of the world’s climate disaster costs on top of its own.
The Town Council President asked if the CDI and state legislators were working with federal legislators on a national and/or state-level public reinsurance option for insurers to keep the pressure on premium prices down. Juarez responded that the state was not looking into providing any such option because “it would essentially put the cost of wildfire insurance on the state, which it cannot afford.” Carrier pushed back by stating that it would not force all costs onto the state (or federal) government, only those excess/catastrophic risks that cannot be anticipated by, and priced into, the CAT Models. At the end of the day, we (residents of the state) are paying for this anyway, whether as taxpayers or ratepayers. We suspect that the cost to us would be less if the backstop were provided through an accountable, subsidized public entity rather than a privately held, global reinsurance entity of which no one has ever heard.
Carrier also noted that Congressman Adam Schiff (who is currently running for the Senate seat vacated by Feinstein) introduced the INSURE Act of 2024, a bill that would provide a public reinsurance option for insurers. The hope is that once the November 2024 election cycle is over. this measure will proceed with bipartisan support since both Red and Blue States are experiencing insurance challenges as natural disasters seem to increase in frequency and/or cost. The Topanga Town Council has reached out to Schiff’s office for comment and will report back on what it hears.
In speaking with Juarez and her associate, Robert Obedoza, after the meeting, Carrier learned that there may be an additional hearing on just the reinsurance piece of the proposed regulatory reform package. Stay tuned.