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THE INDEPENDENT
JUNE 2023
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Jonathan Schreter
President
IIABCal
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President’s Message
California Property Crisis Thrust into the National Spotlight
My planned message this month took a turn after State Farm announced it would cease accepting new applications, including all business and personal lines property and casualty insurance, effective May 27, 2023. It was not lost on me - or anyone who has been following IIABCal’s advocacy on the property crisis - that State Farm cited the “rapidly growing catastrophe exposure, and a challenging reinsurance market.” These are key elements in the solution IIABCal has been championing with the Department of Insurance and legislators in the Assembly and Senate Insurance Committees. Not long after the State Farm announcement, it was reported that Allstate has also stopped writing new property business in California.
These announcements propelled the California property crisis into the mainstream media. A quick Google search shows these stories were picked up by CNN, WSJ, Washington Post, CNBC, CBS, ABC, NBC, and Reuters.
The insurance crisis for homeowners, HOAs, and businesses in areas of wildfire exposure is already real and severe. But with the State Farm announcement and the possibility that other insurers might be compelled to take similar actions, it looks increasingly likely that the availability crisis may no longer be limited to the wildland-urban interface.
IIABCal seized the moment and has formed a powerful coalition with leading trade associations whose members also rely upon a vibrant, competitive property insurance market. Our hope is to pressure the Commissioner, or perhaps even partner with him, to solve this crisis.
We are proud to be out front on this issue and we are committed to ensuring all California consumers have more, and better, property insurance options.
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CEO Corner
Grateful For Our Community
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Jill Epstein
Chief Executive Officer
IIABCal
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Jill Epstein celebrates 1-year as CEO at IIABCal with a video message recorded in Hawaii at the Blue Ribbon Conference.
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IIABCal Advocacy
CDI Holds Agent Briefing
Perhaps feeling the growing level of concern among legislators caused by the State Farm and Allstate announcements, Insurance Commissioner Ricardo Lara held a virtual “briefing” for insurance agents and brokers on June 13.
CDI is “always looking for ways to help insurance agents and brokers” and is committed to “creating competition in the insurance market,” Lara said in the briefing.
Following is the link for the recording of the briefing: https://us06web.zoom.us/rec/share/LqsCtWO0D875l9uMM2WEyT-HeMKpoYi7sqm0-PF3Fs0v-WpLx_hmaLLuYW0tV0fW.YalBGm5wOQT9CdML
The Department has invited brokers and agents to send ideas or comments to: crob@insurance.ca.gov.
“It’s Not the Commissioner’s Fault”
The briefing also featured remarks by Amy Bach, executive director of United Policyholders, a non-profit organization helping consumers with insurance questions or problems. She said that California agents are “lucky to live in a state that protects consumers from price increases” and that “it’s not the Commissioner’s fault” that the property insurance market has largely shut down.
Ken Allen, deputy commissioner of the CDI rate regulation branch, said that many insurers are still writing property insurance, and that the Department is reviewing and approving rate increase requests, despite being inundated by insurers with multiple requests for small increases, rather than single requests for all the full increase they believe they need.
Under the prior approval law added to the California Insurance Code by Prop. 103, a rate increase under seven percent in personal lines avoids potential intervention by self-appointed consumer groups that insurers are required to fund–which can add a year or more to the approval process.
Lara also blamed insurers, rather than the rating law, for the backlog, urging them to file for what they believe they need and can justify.
IIABCal Would Like to Partner with CDI
IIABCal General Counsel Steve Young said agents and brokers would prefer to partner with the Commissioner rather than push legislation forcing him to act.
“We hope the Commissioner, at long last, sincerely wants to work with the producer community,” Young said, “although it’s hard to avoid the suspicion that the announcements of this week are primarily designed to ‘run out the clock’ on this year’s legislative session.”
Lara has previously stated he was opposed to any reform that would permit insurers to raise rates, but Young said the Commissioner is violating his statutory duty to prevent insurers from charging “inadequate” rates, regardless of what they may request.
Only California has this Availability Crisis
“The emerging magnitude of wildfire exposure is a massive problem not unique to California. But only California is in the grips of an insurance availability crisis because the Lara Administration has been more interested in rate suppression than restoring a healthy, highly competitive market for consumers,” Young said.
IIABCal has developed a comprehensive four-part plan that experts believe would create the incentives necessary to convince insurers to resume writing and renewing property risks.
The IIABCal plan to restore the property insurance market—which could be effected by the Commissioner himself, or through legislative action—calls for insurers to be given credit for reinsurance costs, to receive a cost-of-capital adjustment for wildfire risks retained, to be allowed to use prospective rate models, and to receive expedited rate change decisions.
More information about the IIABCal plan can be found here.
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IIABCal Responds to State Farm Moratorium
In light of the major announcement by State Farm that it will accept no new property insurance risks in California–coupled with Allstate’s confirmation that it had already stopped writing new risks–IIABCal is redoubling its efforts to press legislators and the Insurance Commissioner to take steps necessary to reopen property insurance markets.
IIABCal is in communication with the chairs and professional staff of the two insurance committees in the Legislature, and is now forming a coalition of non-insurance organizations—including the California Building Industries Association, the California Association of Realtors, and the California Farm Bureau—whose members are gravely impacted by diminishing property insurance availability.
IIABCal Meets with Gubernatorial Staff
Even before the major announcement by State Farm–the largest personal lines insurer in the US, and also in California–an IIABCal contingent met with a top aide to California Governor Gavin Newson, to ensure the Governor was aware of the severity of the availability crisis, and to request his assistance, should potential future legislation reach his desk.
IIABCal President Jonathan Schreter, CEO Jill Epstein, Lobbyists John and Erin Norwood, and Young, were pleased to learn that the Governor’s office was hearing complaints from industries and consumers all over the state.
In announcing its moratorium, State Farm stressed that its decision was temporary, and based on its own potential overexposure.
State Farm had Concerns About its Financial Strength
"State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market," the company explained in a statement. "It's necessary to take these actions now to improve the company's financial strength. We will continue to evaluate our approach based on changing market conditions."
The company indicated it hoped to "work constructively" with CDI and legislators, but said, “it’s necessary to take these actions now to improve the company's financial strength."
Assembly Insurance Committee Hearing Yesterday
The California Assembly Insurance Committee held what is expected to be its last oversight hearing of the session on Wednesday, June 14, on insurance and emergency management. Neither insurers nor agents were invited to testify, although witnesses for IIABCal have testified at every previous Assembly and Senate Insurance Committee hearing on these issues.
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Legal Defense Fund
Help Keep the Pressure On!
Development of the IIABCal Plan to restore a healthy and competitive property insurance marketplace would not have been possible without generous donations from IIABCal members and friends. Additional funds are needed to help us ensure that the vital interests of independent agents and brokers-and especially your clients-are heard by policy makers. Please consider making a contribution today.
For more information on the Legal Defense Fund or to make a contribution, click here.
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IIABCal Advocacy
IIABCal to Testify at CDI Workshop on Property Risk Modeling
The California Department of Insurance (CDI) announced last week that it will convene a public workshop on July 13 to solicit testimony on the possibility of allowing insurers to use rate modeling technology to more accurately predict catastrophic wildfire losses. IIABCal will testify at that workshop.
“For the past 30 years, the use of actual historical catastrophe losses has been the method used for estimating catastrophe adjustments in the California rate-approval process. However, historical losses do not fully account for the growing risk caused by climate change,” CDI said in announcing the workshop. “Catastrophe estimates based on historical losses only reflect losses after they occur. As a result of climate-intensified wildfire risk and continued development in the wildland urban interface areas, and recent increased efforts to mitigate wildfire risks, past experience may no longer reflect the current wildfire exposure for property owners and insurance companies.”
Lara Faces Growing Pressure From Legislators to Take Action
Insurance Commissioner Ricard Lara and his top deputies have repeatedly dismissed past calls to permit insurers to use rate modeling, claiming without proof that such technology was too “new and untested,” and admitting they don’t want to allow insurers to raise rates. However, with moratoria on new policies recently announced by State Farm, Allstate and other insurers, the Commissioner is facing growing pressure from legislators to take action to restore the property insurance marketplace.
“We hope the Commissioner is serious about evaluating risk modeling, and not using the workshop as a smokescreen solely to deflect legislative intervention,” IIABCal General Counsel Steve Young said. “Prospective loss modeling is widely used–or about to be used–by insurers in every other state, and is already in use here by CalFire, the California Earthquake Authority, and other state agencies.”
Making Confidential Information Public
The Commissioner has requested testimony on a variety of subjects related to rate modeling, including the application of provisions in Prop. 103 that require all portions of rate filings to be open to public inspection. Technology companies that develop rate modeling systems have traditionally required confidentiality of their proprietary methodology.
Issues to be Discussed at the Workshop Include:
• When thinking about incorporating catastrophe models into the rate-level calculation for homeowners and commercial insurance, what is the significance of Insurance Code section 1861.07 [requiring full public disclosure]?
• To what extent can the methodologies, factors, and inner workings of catastrophe models be publicly disclosed in accordance with Section 1861.07 so that the Department can evaluate those models?
• If the Department requires sensitive information in the course of its model review, what are some potential methods of ensuring the Department can adequately review catastrophe models in accordance with Section 1861.07?
• Other states have incorporated alternative methods of structuring model review, such as use of an independent third-party panel. Are there any methods used by other states that would be a viable option in California?
Workshop Could Precede New Regulations
Administrative agencies like CDI customarily hold workshops in order to obtain additional testimony and evidence from members of the public, academia, and industry stakeholders before deciding whether to promulgate a specific regulatory proposal, but nothing requires the Commissioner to actually proceed with regulations.
Here is the CDI: “INVITATION TO WORKSHOP EXAMINING CATASTROPHE MODELING AND INSURANCE."
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IIABCal Advocacy
CEA Faces Tough Decisions in Balancing Coverage and Price
The California Earthquake Authority has released a comprehensive briefing paper that lays out competing, if not mutually exclusive, strategic priorities as it contemplates its future. Senior CEA leaders recently met with IIABCal to explain the difficult decisions its governing board must soon make, and to solicit input from independent insurance agents and brokers.
IIABCal has offered to host a member townhall that would give independent agents and brokers detailed information about the earthquake authority and its current challenges. More information about that meeting will be announced shortly. In the meantime, CEA has made detailed reference materials available here.
CEA Faces a Challenging Reality
“Much like property & casualty insurance enterprises around the world, the California Earthquake Authority faces a challenging reality. Historic inflation continues to increase the insured value of CEA policies. The capacity of the global risk transfer market has shrunk while becoming more expensive at the same time. Scientific models continue to evolve as the seismic community gains new insight into the magnitude of risk that lies beneath California’s surface,” CEA wrote in its Executive Summary.
“CEA’s business model, first put in place over 25 years ago, could not have envisioned the significance of climate change and its impact on global financial and insurance markets. CEA’s response to these challenges will depend upon how the organization chooses to prioritize among several competing objectives.”
CEA must choose among maintaining its financial strength, or rate stability, or coverage options, or policyholder growth, or what it terms “post-event sustainability.”
Financial Strength: CEA is currently capitalized to cover not only a major earthquake, but one with a 1-in-350 year level severity, which would mean an event significantly worse than even the Great San Francisco Earthquake of 1906. To maintain that financial strength, CEA must significantly increase rates, reduce optional coverages, or increase assessments on participating insurers, or some combination of them all.
Rate Stability: If CEA does not increase rates significantly, then financial strength would drop, coverages would need to be reduced, or carrier assessments would need to be increased.
Coverage Options: Maintaining generous optional coverages and higher insured limits would require some combination of increased financial strength, higher rates, and/or increased industry assessments.
Policyholder Growth: CEA is already the largest earthquake insurer in the country. Insuring even more properties would require some combination of higher rates, a reduction in financial strength, a reduction in optional coverages, and/or increased insurer support.
Post-event Sustainability: CEA was created to pay claims in the event of one, massive earthquake. If CEA was, instead, structured to survive “the Big One,” legislative action would be required to authorize continued operation after its claims-paying capacity was reached or exhausted.
The CEA was created after the 1994 Northridge Earthquake, when homeowners’ insurers stopped writing insurance because of state law requiring them to offer and provide earthquake insurance. It permitted participating insurers to essentially offload all of their earthquake risk into the new entity—in exchange for very large payments, and potential future assessments. Companies are not required to participate in CEA, and many independent agency companies elected to retain their own EQ risks; however, all of the major captive agency direct writers insurers continue to participate in CEA.
Approximately two-thirds of all earthquake policies in California are sold through CEA, and it has a reported $19 billion in claims-paying capacity.
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Member Markets
Insurers Support National Safety Month
June is National Safety Month and our members have been working hard to bring awareness and solutions to prevent injury and death so workers can stay safe on the job and at home. Here are 3 members who are doing important work and sharing great resources in our industry. Kinetic Insurance has made a #MSDPledge to the National Safety Council which is an important cause committed to preventing musculoskeletal disorders year round. Capital Insurance Group (CIG) is also sharing actionable resources from the National Safety Council to help people everywhere live safely all year round. The State Compensation Insurance Fund also has a strong focus on education and awareness to multiple industries in order to help prevent workplace injuries and death.
With the focus of safety in mind and the anticipation of the big snowmelt in California, we loved the resources our program partner Selective has shared to help keep our workers and communities safe from risk of flood. According to the California Department of Water Resources data California’s epic statewide snowpack stands at 327% of normal for this time of year. This greatly increases the risk of floods to our businesses and communities as the snow melts with the warmer temperatures.
Learn more about flood risk prevention by checking out these articles Selective has shared: https://www.selective.com/about-selective/blog/flood-risk-preparedness.
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The Dangers of Snowmelt & Flooding: https://www.selective.com/about-selective/blog/flood-risk-preparedness/the-dangers-of-snowmelt-and-flooding
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Help Keep Children Safe in Event of a Flood: https://www.selective.com/about-selective/blog/flood-risk-preparedness/keep-children-safe-in-a-flood
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Risk Prevention Tips for Floods: https://www.selective.com/about-selective/blog/flood-risk-preparedness
Selective is a Big I endorsed partner, take a look at their NFIP Claim Process video.
Do you have any questions about Flood Insurance? Meet Julie McLaren, Selective’s Flood expert and Senior Flood Territory Manager. Please reach out to Julie with any flood related questions, and make sure to mention you are an IIABCal member!
Stay tuned for our upcoming "Flood Program Overview – NFIP 101" CE Webinars.
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Save the Date
Installation Celebration
We are excited to announce that our 2023 Installation Celebration featuring Cupcakes & Cocktails, will be held at the San Diego Marriott on Wednesday November 8th. Registration will open early July.
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Member Survey
Your Chance to Help Shape IIABCal Priorities
On June 12th, we emailed members our first member survey in several years. IIABCal is launching an exciting strategic planning exercise to identify our key priorities and opportunities for the next three years and your input is absolutely critical. We are deeply interested in your feedback as our member experience is our very first priority.
Please take 10 minutes to complete this important survey by June 30, 2023. Please search for an email from jpouey@iiabcal.org via Survey Monkey or email oblankson@iiabcal.org to request a link.
Completed surveys will be entered to win 2 tickets to the IIABCal “Installation Celebration” on November 8 at the San Diego Marriott Del Mar.
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IIABCal Board and Committee Nominations
Be a Strategic Resource for IIABCal’s Success
Have you thought about how you could use your insurance industry experience, business acumen, and leadership skills to facilitate positive change for all independent insurance agents and brokers in California?
IIABCal would love to partner with you.
Serving on IIABCal’s board or one of our committees allows you to contribute to the direction and success of our entire organization.
Make a greater impact and give back to your community today!
Fill out the simple nomination form (which includes descriptions of the volunteer opportunities) here.
Nominations are due June 30, 2023.
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Member Question of the Month
When can we charge brokers’ or agents’ fees?
Q. We are considering charging fee on clients that we’ve found are not profitable. We’ve analyzed touch points to see how much time/money we spend servicing each account. If we’re spending more than we are earning, we want to charge a fee in order to meet our profitability goals. We would do this solely on agency-bill policies, which comprise a small percentage of our book but tend to have the most profitability issues. We can’t do this on direct-bill, since billing is out of our hands. Are we legally entitled to charge fees, provided we use a fee agreement signed by the policyholder?
A. Although California law does prohibit certain brokers’ fees—on policies sole through the California Automobile Assigned Risk Plan (CAARP) and the California FAIR Plan, to cite two examples—there is no similar statutory prohibition on fees in general.
Fees charged by brokers are generally permitted. Fees charged by agents are permitted, but only in limited situations.
Click here to read the full response and Q & A.
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IIABCal’s “Member Question of the Month” features questions from agents & brokers.
IIABCal General Counsel Steve Young provides answers to your legal questions as part of your membership benefits.
Have a question? Email Steve Young at syoung@iiabcal.org.
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Market Access Report
2023 California Annual P&C Marketplace Summary
IIABCal commissioned the 2023 P&C Marketplace Summary for California to give our members the critical data to stay on top of California’s competitive landscape, identify current and future trends, and have deeper insight into what your clients need.
This report is available to members at no charge and provides you the following important information on the California P&C Marketplace:
• Premiums for all 32 P&C lines of business in California
• The Top 10 lines for independent agents
• Growth rates
• Loss ratios
• Penetration rates and trends
• Commission rates
• Surplus lines utilization rates
This comprehensive report reflects the business we place (or compete against) for our clients in California.
As a direct benefit of your membership with IIABCal, we are pleased to provide this invaluable report to you free of charge.
Click here, for your report.
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Local Association News
IIAB Sacramento
At the May Quarterly Luncheon, IIAB Sacramento presented a check to the Veterans of Foreign War (VFW Post 8358) Dog Training Program. This charity trains service dogs for our local veterans suffering from PTSD as a result of their service.
The Guest of Honor Baldwin Wong, played the National Anthem on his Bugle and brought a trainee K9 to the luncheon. Our speaker, Ric Burwell of Sacramento State University, Insurance and Risk Management provided information on the up and coming generation and how we can partner to attract young talent into the industry.
On June 27th, 2023 IIAB Sacramento is hosting a Coffee Talk with John Norwood and Steve Young for our members to come and hear the latest from our local advocacy representatives and how they are fighting for the Independent Agent amid the CA P&C Market Crisis.
Big I Day is set for October 10th 2023. This year the Big I Day committee, chaired by Brennen Cull of CoreMark Insurance Services, has secured a phenomenal speaker, John Rinehart - President, Business Operations of the Sacramento Kings!
New educational seminars with relevant topics have been added to the schedule. More information on IIAB Sacramento Big I Day 2023 can be found HERE.
Please make sure to check out our local upcoming events!
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Picture above: from L to R - Haley Andrews, Gaines Insurance Agency/President of IIAB Sacramento, Peyton Reeves of Zenith, Derek Van Grundy of Zenith, and Baldwin Wong of Veterans of Foreign War (VFW Post 8358) Dog Training Program)
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Local Association News
IIAB San Diego
The San Diego I-Day was held on May 11, 2023. There were 105 exhibitors, 650 for lunch, and 950 pre-registered! Two morning CE courses were offered. The theme "Win Big at I-Day - How Sweet It Is!" brought a lot of fun to the exhibit hall throughout the day. Our guest speaker, Afsoon Roshanzamir Johnston, inspired all with her amazing life story! The success of this event is made possible thanks to the sponsors, exhibitors, and attendees!
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Local Association News
AB San Fernando Valley
IBA-SFV had its 26th annual Golf Day 2023 on May 15th at Porter Valley Country Club. With over 120 golfers in attendance, this was a wildly successful event. Great Fun, Golf, Mercedes Benz hole in one giveaway (nobody won) was had by all. We look forward to our next big event: Monte Carlo Night (coming soon).
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Continuing Education Webinars:
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