Governor Gavin Newsom declared a state of emergency Thursday over the property insurance availability crisis in California, and Insurance Commissioner Ricardo Lara vowed to use that declaration to speed the promulgation of emergency regulations that could restore competitive health to the market.  

One week after the Legislature adjourned for the year without passing legislation to address the crisis, the Governor and Insurance Commissioner announced their intention to move forward with administrative and regulatory actions to implement key elements of a plan negotiated by key stakeholders that failed to materialize in a bill before the session ended. 

Lara Announces Detailed Sustainable Insurance Strategy  

At a press conference held only hours after the Governor’s announcement, Lara announced a comprehensive Sustainable Insurance Strategy, constituting the most significant set of insurance reforms since Prop. 103 was narrowly approved by voters in 1988. 

Key regulatory elements of Lara’s plan include:  

1. Executive action by the Commissioner to transition homeowners and businesses from the FAIR Plan back into the normal insurance market with commitments from insurance companies to cover all parts of California by writing no less than 85% of their statewide market share in high wildfire risk communities. For example, if a company writes 20 out of 100 homes statewide, it must write 17 out of 100 homes in a distressed area; 

2. Giving FAIR Plan policyholders who comply with the new Safer from Wildfires regulation first priority for transition to the normal market, thus enhancing the state’s overall wildfire safety efforts;  

3. Expediting the Department’s introduction of new rules for the review of climate catastrophe models that recognize the benefits of wildfire safety and mitigation actions at the state, local, and parcel levels;  

4. Directing the FAIR Plan to further expand commercial coverage to $20 million per building to close insurance gaps for homeowners associations and condominium developments to help meet the state’s housing goals and to provide required coverage to other large businesses in the state; 

5. Holding public meetings exploring incorporating California-only reinsurance costs into rate filings; 

6. Improving rate filing procedures and timelines by enforcing the requirement for insurance companies to submit a complete rate filing, hiring additional Department staff to review rate applications and inform regulatory changes, and enacting intervenor reform to increase transparency and public participation in the process;  

7. Increasing data reporting by the FAIR Plan to the Department, Legislature, and Governor to monitor progress toward reducing its policyholders; and, 

8. Ordering changes to the FAIR Plan to prevent it from going bankrupt in the case of an extraordinary catastrophic event, including building its reserves and financial safeguards. 

Lara: “The current system is not working”

“We are at a major crossroads on insurance after multiple years of wildfires and storms intensified by the threat of climate change. I am taking immediate action to implement lasting changes that will make Californians safer through a stronger, sustainable insurance market,” Lara said. “The current system is not working for all Californians, and we must change course. I will continue to partner with all those who want to work toward real solutions.” 

“Unlike public utilities, which are required by law to cover all consumers, insurance companies will not write insurance, especially in high-risk areas, unless they are able to ensure they have the capital and reserves to fully meet all insurance claims submitted by consumers, cover their expenses, and earn a fair return,” the Department of Insurance stated in a release announcing the Commissioner’s plan.  

A copy of the Governor’s Executive Order can be found here. It requests the Commissioner to take swift regulatory action to strengthen and stabilize California’s marketplace, with the following goals: 

• EXPAND CHOICES, STABILIZE MARKET. Expand coverage choices for consumers, particularly in underserved areas of the state. Maintain the long-term availability of homeowners and commercial property insurance coverage. 

• BETTER RATE APPROVAL PROCESS. Improve the efficiency, speed, and transparency of the rate approval process. Tailor the rate approval process to account for all factors necessary to promote a robust, competitive insurance marketplace. 

• STRONGER FAIR PLAN. Maintain the solvency of the FAIR Plan to protect its policyholders and promote long-term resiliency in the face of climate change, including by identifying mechanisms to reduce its share of the overall market in underserved areas and move its customers into the admitted insurance market. 

• ACCELERATE IMPLEMENTATION. Direct the Department of Finance to consult with the California Department of Insurance to support the rulemaking process and help accelerate implementation of potential regulations. 

“Some companies have already announced they will stop issuing new policies in California. Others are limiting policy renewals. We can expect more of this to come in the short term,” the press release issued by the Governor’s Office stated. “That is why it is critical for the Insurance Commissioner to act quickly to help stabilize the state’s marketplace, while maintaining consumer protections and fair rates.” 

Newsom says California needs a balanced approach  

Gov. Newsom was quoted, saying, “This is yet another example of how climate change is directly threatening our communities and livelihoods. It is critical that California’s insurance market works to protect homes and businesses in every corner of our state. A balanced approach that will help maintain fair prices and protections for Californians is essential. I look forward to continuing to work with Commissioner Lara and others to strengthen our marketplace and protect Californians.” 

Lara vowed to take full advantage of the emergency declaration to develop and implement amendments to prior approval regulations that could potentially give insurers writing insurance in wildfire-prone areas more adequate rates, and faster rate decisions. 

With the Governor’s declaration of an emergency, the Commissioner can promulgate regulations more quickly than otherwise permitted under the California Administrative Procedures Act. 

Key stakeholders, including IIABCal, were involved in negotiations last month that produced a consensus on several aspects of a remedial plan, and would have included a legislative declaration of emergency. However, the session ended before the plan could be put into bill form or voted upon. 

The Commissioner’s Plan Endorses IIABCal Recommendations 

IIABCal has urged the Commissioner to adopt a series of long-overdue reforms to the Prop. 103 prior approval process, all of which were included in the proposed legislative plan—and in what the Commissioner today announced he intends to pursue. But the legislative plan also included, and the Commissioner is now supporting, other, critically important provisions to bolster the financial ability of the California FAIR Plan to pay catastrophic losses, limit pointless delays by intervenors--and to require insurers to agree to write significantly more business in distressed areas, as a condition to use the new rating tools.  

“Although administrative actions and implementation of new regulations, even on an emergency basis, will take time, this is an important and positive development in the fight to restore the property insurance market in California,” IIABCal Lobbyist John Norwood said. 

IIABCal Will Support Commissioner Lara’s Efforts 

“We applaud the Insurance Commissioner for seizing the initiative, and we will actively work to help the Department of Insurance adopt the best new rules possible to convince insurers to start writing and renewing property risks in all areas of the state,” said IIABCal President Jonathan Schreter. 

The Commissioner’s office had been quietly signaling for weeks that it was prepared to support, in concept, the reinsurance and cat modeling proposals—reversing months of public opposition—so long as it could control through the regulatory process the implementation details. 

“It’s better late than never,” IIABCal General Counsel Steve Young said. “Mr. Lara now has the chance to be remembered as the Commissioner who restored a vitally important insurance marketplace to competitive health. He has announced a bold, visionary approach to help California insurance consumers, and we will do everything in our power to help him succeed.”