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HomeMy WebLinkAbout2025-01-14; City Council Legislative Subcommittee; 03; California Department of Insurance UpdateMeeting Date: Jan. 14, 2025 To: Legislative Subcommittee From: Jason Haber, Intergovernmental Affairs Director Staff Contact: Jason Haber, Intergovernmental Affairs Director jason.haber@carlsbadca.gov, 442-339-2958 Subject: California Department of Insurance Update District: All Recommended Action Receive an update from the California Department of Insurance regarding California’s residential and commercial property insurance marketplace and the state’s Sustainable Insurance Strategy and provide feedback. Discussion The California Department of Insurance is the consumer protection agency responsible for regulating the insurance industry in California. According to the department’s website (www.insurance.ca.gov), the department’s mission is to protect all Californians by regulating the insurance industry to ensure a competitive and sustainable market, investigating fraud, and advocating for consumers through awareness, public policy, innovation, and service. The department uses its authority to protect Californians from insurance rates that are excessive, inadequate, or unfairly discriminatory, oversees insurer solvency to pay claims, sets standards for agents and broker licensing, performs market conduct reviews of insurance companies, resolves consumer complaints, and investigates and prosecutes insurance fraud. A representative from the California Department of Insurance will provide a department overview and update on California’s Sustainable Insurance Strategy (Exhibit 1), a comprehensive initiative aimed at modernizing the state's insurance market to ensure accessible insurance for all Californians, create a resilient insurance marketplace, and protect consumers and communities from the adverse impacts of climate change. Next Steps None. Exhibits 1.California’s Sustainable Insurance Strategy Fact Sheet LEGISLATIVE SUBCOMMITTEE Jan. 14, 2025 Item #3 Page 1 of 3 CALIFORNIA SUSTAINABLE INSURANCE STRATEGY insurance.ca.gov 800-927-4357 CALIFORNIA'S SUSTAINABLE INSURANCE STRATEGY What is the Sustainable Insurance Strategy? California Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy is a comprehensive initiative aimed at modernizing the state's insurance market to ensure accessible insurance for all Californians, create a resilient insurance marketplace, and protect consumers and communities from the adverse impacts of climate change. It addresses the challenges posed by rising global inflation, increased insurance costs for rebuilding, and the growing risk of natural disasters. Why is it Important? The Sustainable Insurance Strategy is crucial because it addresses the pressing issues faced by both the insurance market and consumers in California. It responds to the changing landscape of insurance by enhancing market stability, improving consumer access to coverage, and safeguarding against the escalating financial burden of climate change-intensified catastrophes and global inflation. How Will it Benefit the Market and Consumers? This strategy enhances insurance access, fairness, and resilience for both the market and consumers. •Increasing Insurance Availability and Access: The strategy seeks a commitment from insurance companies to write a minimum of 85% of their statewide market share in wildfire distressed areas identified by the Insurance Commissioner. This ensures that insurance remains available, especially for homeowners in high wildfire-risk regions. •Decreasing FAIR Plan Policyholders: Priority is given to homes and businesses that mitigate wildfire risk by following the Insurance Commissioner’s "Safer from Wildfires" regulation, facilitating a return to the open market and increasing options for consumers. •Allowing Catastrophe Models and Mitigation: The strategy incorporates new catastrophe models that consider mitigation and hardening requirements, leading to more accurate risk pricing and offering discounts to consumers. This means more accurate rates for all Californians so they don’t pay more than they should. •Modernizing the FAIR Plan: By expanding commercial coverage limits to $20 million per structure, the strategy addresses coverage gaps, benefiting homeowner associations (HOAs), affordable housing, and infill developments. The Most Comprehensive Insurance Regulatory Reform in Decades This strategy represents the most significant insurance reform since Proposition 103 was passed in 1988. It is informed by the voices of thousands of consumers from every county in California, demonstrating a commitment to addressing the real-world challenges faced by Californians. Exhibit 1 Jan. 14, 2025 Item #3 Page 2 of 3 I I I I CALIFORNIA SUSTAINABLE INSURANCE STRATEGY insurance.ca.gov 800-927-4357 Market Benefits Market benefits include improved stability, transparency, sustainability, and broader participation. • Rate Review Timelines: Improved to provide market certainty, supporting the long-term stability of insurance rates. • Rate Filing Procedures: Enhanced to maintain intervenor transparency, fostering confidence in the insurance market. • Risk Assessment Tools: Introduction of catastrophe modeling regulations ensures the sustainability of coverage and rates, and exploration of California-only net costs of reinsurance protects consumers from the costs of global catastrophes. • Increased Transparency: Making intervenor filings more publicly accessible and encourage broader participation and understanding of the rate-setting process. California Department of Insurance Enforcement and Resources The Department of Insurance (CDI) will continue to ensure public input, insurance company commitments, rate approval process efficiency, additional staff resources, and reporting on progress. • Regulatory Process Control: CDI maintains control over the rate review and catastrophe modeling processes, guaranteeing public input and transparency compliance. • Binding Agreements: Insurance companies must increase writing and set clear targets to reduce reliance on the FAIR Plan. • Rate Filing Control: Updates to rate filing processes enhance efficiency and accessibility. • Additional Department Staffing: To implement major regulatory changes by December 2024 and improve rate filing processes. • CDI Reporting: Periodic progress reports on insurance availability, rulemakings, and FAIR Plan depopulation efforts. Major Actions Taken to Date Major actions include regulations for wildfire mitigation, insurance discounts, expanded FAIR Plan coverage, and modernization efforts, as well as partnerships for climate sustainability. Wildfire Response • "Safer From Wildfires" Regulation: Sets community-wide mitigation standards and rewards consumers and businesses for property hardening with first-in-the-nation mandatory discounts. • Expanded FAIR Plan Coverage: Includes agrobusiness, outdoor, and recreation businesses. • Continued Modernization of the FAIR Plan: Provides consumers with more options. Climate Response • "Climate and Sustainability Branch": The first in the country at any state insurance department. • "Climate Insurance Working Group": Generated California's first-ever Climate Insurance Report. • United Nations Partnership: Launched "California's Sustainable Insurance Roadmap." Commissioner Lara’s Sustainable Insurance Strategy is a visionary approach to address the evolving insurance landscape, benefiting both the insurance market and consumers alike by ensuring access, affordability, and resilience in the face of changing climate change-intensified catastrophic risks. Jan. 14, 2025 Item #3 Page 3 of 3 I I I I California’s Sustainable Insurance Strategy 1 Sustainable Insurance Strategy Insurance at a Crossroads in California Growing climate change threats Historic inflation Several insurers stopped writing and non-renewing policyholders despite approval of multiple rate increases Accelerated FAIR Plan growth Fewer options and higher costs Outdated decades-old regulations 2 Proposition 103 ~ Brief Overview California voters passed Prop. 103 in 1988, requiring every property and casualty insurer seeking to change its rates to obtain elected Insurance Commissioner’s prior approval Insurance Commissioner has a responsibility to ensure that approved insurance rates are not “excessive, inadequate, unfairly discriminatory” All information provided to Insurance Commissioner in rate review process must be available for public inspection California is only state that requires rate filings to be open for public participation in rate review process 3Sustainable Insurance Strategy Current Rate Review Process 4 By statute under Prop. 103, Department must approve rate applications within 180 days upon receipt However, delays largely due to: Insurers not submitting all necessary and complete information needed to support rate application and justify rate need Intervenor delays Outdated technology to reconcile data between Department and insurers Department has been hiring additional staff and re-directing vacancies to meet needs, in addition to Complete Rate Application regulation, intervenor transparency reforms, and filing timing/process efficiencies Sustainable Insurance Strategy Department staff bandwidth and continued review of successive +6.9% rate increase requests from insurers 5 Streamline and improve Department’s rate application approval process Introduce new risk management tools in ratemaking – Catastrophe Modeling and Reinsurance Costs Insurer commitments to write more policies in wildfire distressed areas and reduce FAIR Plan policies Strengthen and Modernize FAIR Plan Sustainable Insurance Strategy Governor’s Executive Order N-13-23 To Strengthen Property Insurance Market Insurance Commissioner’s Sustainable Insurance Strategy (Announced September 2023) • • • • California Consumers Benefit with Insurers Increasing Writings in State New regulations create pathways for this commitment to write for large companies, small to midsize companies, and new entrants into California insurance marketplace Insurance companies must commit to writing policies in high wildfire areas – which they are not legally required to do today Goal of achieving greater insurance availability for consumers, including decrease in amount of FAIR Plan policies that go back into admitted insurance market Sustainable Insurance Strategy 4 California had to: Develop regulations to allow the use of catastrophe models in ratemaking while meeting Prop. 103 mandate for public review and transparency in addition to recognizing proprietary materialcontained in such models Develop the process for incorporating catastrophe models into actuarial formulas in insurer rate filings Identify “Distressed Areas“ that the Department expects insurers to commit to writing more policies in before allowing them to incorporate the use of catastrophe models in ratemaking •Use of historical losses are not as accurate, and do not take parcel-level and community-wide mitigation efforts into account •While majority of other states allow the use of private catastrophe models in ratemaking, California cannot introduce such use without meeting the public transparency requirements of Prop. 103. 1 2 3 Introduction of Catastrophe Modeling Sustainable Insurance Strategy 7 Insurers commit to writing more policies in distressed areas before allowing them to incorporate California-only reinsurance costs in ratemaking Reinsurance in Ratemaking Insurers paying more to manage growing natural climate disaster losses and need to accurately reflect growing costs of writing insurance in California Goal is to increase insurance availability to Californians across state Sustainable Insurance Strategy 8 Historic consensus between Insurance Commissioner, FAIR Plan, and admitted market insurers More – yet temporary – comprehensive coverage with new $20 Million commercial coverage per structure with overall limit of $100 million for larger HOAs, housing developers, and larger businesses Necessary solvency protections added for FAIR Plan and participating admitted market insurers Increased public reporting for accountability Modernizing FAIR Plan Sustainable Insurance Strategy 9 • • • • •Streamlined Rate Application Process and Efficiencies – Complete Rate Application Regulation completed on October 9th and Rate Review Accountability Bulletin 2024-7 released on August 9th. Major elements completed, with Rate Reconciliation Tool efforts underway. •Catastrophe Modeling Regulation with Wildfire “Distressed Areas” Definition and FAIR Plan Depopulation Mandate – Final Regulatory Package approved by Office of Administrative Law (OAL) on December 12th. Major elements completed to date. •Reinsurance Regulation with Wildfire “Distressed Areas” Definition and FAIR Plan Depopulation Mandate – Public workshop on regulation concept held on December 5th with Final Regulatory Package submitted to OAL on December 30th for review. Major elements completed to date. •FAIR Plan Modernization Plan – CDI/FAIR Plan-Negotiated Final Stipulation and Order with Revised Plan of Operations executed on August 27th and long-term solvency Bulletin 2024-8 on Insurer Recoupment Procedures released on September 3rd. Major elements completed to date. •Intervenor Transparency Reform – Major administrative actions completed by July 2024. Major elements completed to date, with public rulemaking to be introduced in 2025. SIS Timeline Progress Sustainable Insurance Strategy 10 Safer from Wildfires Framework gives you specific steps you can take to mitigate your risk and help you obtain insurance Catastrophe models are now being submitted for review – Verisk and Moody’s are being reviewed now with more expected in months Insurance companies will need to submit complete rate applications Insurance Companies expected to have new policies available mid 2025 What’s Next Sustainable Insurance Strategy 11 • • • • •Sign up for our Community Outreach and Education Partnership Initiative at https://www.surveymonkey.com/r/VHGZQHT •This dynamic program is designed to increase consumer awareness about CDI's services and expand understanding of key insurance topics and fraud prevention. •Get access to: •Comprehensive consumer education materials •Specialized training sessions ( First webinar on January 31st,2025) •Powerful social media tools How to Partner with Us Sustainable Insurance Strategy 12 A CONSUMER EDUCATION PARTNERSHIP INITIATIVE CA DEPARTMENT OF INSURANCE COMMUNITY RELATIONS & OUTREACH BRANCH 2025 A CONSUMER EDUCATION PARTNERSHIP INITIATIVE CA DEPARTMENT OF INSURANCE COMMUNITY RELATIONS & OUTREACH BRANCH 2025 •This initiative highlights the critical role of insurance in mitigating risks and enhancing resilience, offering key concepts, innovative solutions, and funding strategies to help communities adapt. •10 page local planning guide, flyers, 4 part webinar series, resource portal on our webpage •Part 1 of Webinar Series: The Impact of Extreme Weather Events on Insurance starts on February 26th, 2025 Local Climate Planning Initiative Sustainable Insurance Strategy 13 California Department of Insurance Partnership Initiative LOCAL PLANNING GUIDE FOR EXTREME WEATHER EVENTS CA DEPARTMENT OF INSURANCE CONSUMER OUTREACH LOCAL GOVERNMENT CLIMATE~,,. ...... --- PLANNINC WEBINAR The California Department of Insurance is eager to collaborate with your city, county, or municipality to provide information on how to enhance climate resilience and ensure the safety of your community. FREE REGISTRATION! Attend a four-part webinar to explore the role of insurance in mitigating climate risks and fostering financial resilience in communities. • Part l: The Impact of Extreme Weather Events on Insurance • Part 2: Creating a Holistic Approach to Community-Centered Resilience • Part 3: Building Partnerships and Designing Climate Projects • Part 4: Funding Mechanisms register for FREE today! grco.de/ CDICLIMA TEINITIA TIVE '-' 800-927-4357 (HELP) G) insurance ca gov O @insurancecagov O @CDlnews