Meeting Date: Jan. 14, 2025
To: Legislative Subcommittee
From: Jason Haber, Intergovernmental Affairs Director
Staff Contact: Jason Haber, Intergovernmental Affairs Director [email protected], 442-339-2958
Subject: California Department of Insurance Update
District: All
Rec
ommended 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 i
s 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 material contained in such models
Develop the process for incorporating catastrophe modelsinto actuarial formulas in insurer rate filings
Identify “Distressed Areas“ that the Department expects insurers to commit to writing more policies in beforeallowing 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
E
ducation Partnership Initiative at
https://www.surveymonkey.com/r/VHGZQHT
• This dynamic program is designed to increase
c
onsumer awareness about CDI's services and
expand understanding of key insurance topics
and fraud prevention.
• Get access to:
• Comprehensive consumer education
m
aterials
• Specialized training sessions ( F irst
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
i
nsurance 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
w
ebinar series, resource portal on our
webpage
• Part 1 of Webinar Series: The Impact of
E
xtreme 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 c ity, county, or municipality to provide information on how to enhance c lim ate res ilience and ensure the sa fety 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 Impa ct of Extreme Weath er Events on Insura nce • Part 2: Creating a Holistic Approach to Commu nity-Cente red Resilience
• Part 3: Building Partnerships and Designing Climate Project s • Part 4: Funding Mechanisms
register for FREE today!
g rco.de / CDICLIMA TEINITIA TIVE
'-' 800-927-4357 (HELP) G) insurance ca gov O @insurancecagov O @CDlnews