Department of Insurance Says Wildfires Making It Harder to Find Coverage

The California Department of Insurance claims insurance is becoming harder to find for those in high wildfire-risk areas as a result of recent wildfires. The data reveals there was a six percent increase of insurer-initiated homeowner policy non-renewals in Cal-Fire State Responsibility Areas from 2017 to 2018, while zip codes affected by the devastating fires from 2015 and 2017 experienced a 10 percent increase in insurer-initiated non-renewals last year. 

The data provided also revealed the availability of homeowners’ insurance dropped in high-risk counties. From 2015 to 2018, the number of new and renewed homeowner policies fell by 8,700 in the 10 counties with the most homes in high or very high-risk areas. These same counties saw a steady increase in new FAIR Plan policies during that timeframe, growing 177 percent, compared to only a 4 percent increase for the five counties with the lowest risk. The FAIR Plan provides insurance coverage as a last resort for homeowners who are unable to find coverage in the voluntary market. 

Nearly 57 percent of new FAIR Plan policies are now written in State Responsibility Areas (SRA), which is up from 47 percent in 2015. Data shows there has been a 49 percent increase in surplus lines policies in State Responsibility Areas between 2015 and 2018. 

The new data does not measure the full impact of non-renewals of homeowner policies linked to the devastating 2018 wildfires, including the Camp, Carr and Woolsey/Hill fires. Since California law requires insurers to give a 45-day notice before a non-renewal and these wildfires occurred near the end of the year, the effects of these fires on the insurance market would likely appear in 2019 and possibly beyond. 

In recent weeks, Commissioner Ricardo Lara has met with local leaders in counties affected by wildfire risk. The Department of Insurance continues to pursue ideas to reduce risk to our communities through mitigation and stronger consumer protections. 

In response to the Department’s announcement, the American Property Casualty Insurance Association and Personal Insurance Federation of California issued a statement noting the data does not address the most important question: was the homeowner able to obtain insurance from another carrier? The data shows that in high-to-moderate areas the non-renewal rate has held steady at 2% (2.1% in 2015; 2% in 2016; 1.9% in 2017; 2% in 2018). For new policies, carriers continue to write a significant number of policies in these areas.

Legislation Increasing Insurance Protections for Homeowners Moves Forward

The California Senate Insurance Committee last week approved legislation by Assembly Bill 1816, authored by Assembly Member Tom Daly, to increase protections for homeowners in the aftermath of a series of devastating wildfires. AB 1816 requires insurance companies to provide a 75-day notice to policyholders when they non-renew a homeowner’s policy. It also raises the limit on homeowners’ insurance claims covered by the California Insurance Guarantee Association (CIGA) to $1 million.

The committee’s action followed another hearing earlier in the day, during which members of the Assembly Insurance Committee (chaired by Daly) heard testimony about the current insurance market and the role of the FAIR Plan, California's "insurer of last resort."

California has experienced a massive increase in the loss of life and property caused by wildfires. Beginning in 2015 with a spate of fires in Lake County, wildfires have devastated communities around the state including enormous fires in Butte, Shasta, Sonoma, Napa, Ventura, Santa Barbara, and Los Angeles counties. Among the many consequences of the losses caused by these fires are significant changes in the homeowners’ insurance market in high fire risk areas.

To address existing gaps in that market, AB 1816 will change three features of current law related to homeowners’ insurance availability and insurer insolvency. First, it increases the minimum time period for an insurer to provide a notice of non-renewal to a homeowner. Second, it expands an existing incentive for an insurer to issue and renew homeowners’ policies in high-risk fire areas through “write out” credits provided by the FAIR Plan. These credits act to reduce the insurer’s exposure to any future financial assessment imposed by the FAIR Plan to ensure its solvency. Lastly, the bill increases the limit on claims payments made by the CIGA, the state-mandated entity responsible for paying the claims of insolvent property/casualty insurers.

These three elements increase protections for homeowners by providing greater notice and stronger guarantees while providing insurers with practical incentives for renewing policies in high fire risk areas. AB 1816 will be voted on by the full Senate within the next three weeks.

Fitch Upgrades California’s Credit Rating

Citing decisions to build the state’s fiscal reserves and California’s economic growth, a major credit agency has upgraded the state’s credit rating to ‘AA’ and noted a stable outlook. Fitch Ratings writes California has improved its ability to weather an economic downturn.

“The state eliminated the overhang of budgetary borrowing that had accumulated through two recessions and continues to set-aside funds in the budget stabilization account,” the agency wrote.

The upgrade of California's rating to ‘AA’ from ‘AA-’ reflects the improved fiscal management that has become institutionalized across administrations, which in Fitch's view allows it to better withstand economic and revenue cyclicality. Fitch Ratings pegs this to temporary tax increases, underlying revenue growth, and a disciplined approach to limiting on-going spending growth in the State Budget.

Fitch specified four key rating drivers contributing to this bump:

1) Revenue Framework: rated ‘aaa’ due to California’s strong prospects for revenue given its strong economic fundamentals, and has a legislative super-majority in the case it needs to raise taxes.

2) Expenditure Framework: rated ‘aa’ for its ability to reduce spending through the economic cycle, although there are Constitutional requirements in place for certain areas of funding.

3) Long-Term Liability Burden: rated ‘aa’ as long-term liabilities remain a moderate burden on California’s balance sheet as the state has made and continues to make supplemental contributions to its pension obligations after the funding ratios took a hit following the recession.

4) Operating Performance: rated ‘aa’ for the state’s strong budget management during the economic expansion, especially the financial position and ability to address future fiscal challenges with significant funding into the Rainy Day Fund.

The 2019-2020 Budget signed by Governor Gavin Newsom made a series of investments in expanding the state’s financial security. The Budget will end the year with total reserves of $19.2 billion, of which $16.5 billion is in the Rainy Day Fund, $1.4 billion in the Special Fund for Economic Uncertainties, $900 million in the Safety Net Reserve and nearly $400 million in the Public School System Stabilization Account.

An extra payable totaling $9 billion will be made over the next four years to pay down unfunded pension liabilities. This includes $3 billion to CalPERS and $2.9 billion to CalSTRS on behalf of the state, and $3.15 billion to CalSTRS and CalPERS on behalf of the schools.

Additionally, the Budget prioritizes one-time investments, with 88 percent of new expenditures being temporary rather than ongoing. This addresses the affordability crisis facing Californians while minimizing ongoing commitments to avoid putting the state at a fiscal disadvantage in the future.

Governor Launches “Listos California” Campaign to Help Build Community Resilience to Wildfires

Governor Gavin Newsom, the Governor’s Office of Emergency Services (Cal OES) and California Volunteers today released the grantees awarded $50 million in local disaster resilience grants and announced the official launch of the state’s new emergency preparedness campaign, known as Listos (Ready) California, to build resiliency in vulnerable communities at high risk for wildfires and other disasters.

Climate change has led to a new wildfire reality in California and socially vulnerable communities are disproportionally impacted by devastating wildfires, earthquakes, and other disasters. Listos California is a new effort to boost disaster preparedness by engaging a statewide network of community-based organizations, CERT (Community Emergency Response Teams), Listos, AmeriCorps NCCC, veterinary organizations, Fire Safe Councils and management teams to ensure the state’s most vulnerable are ready when disaster strikes.

Governor Newsom and state lawmakers together invested $50 million through urgency legislation (AB 72) to establish an emergency preparedness campaign as a joint effort between California Volunteers and Cal OES.

California Volunteers has awarded $30 million to expand Community Emergency Response Teams (CERT), Listos programs, Fire Safe Councils, AmeriCorps NCCC and AmeriCorps Disaster Cadres in order to deliver culturally and linguistically relevant emergency preparedness curriculum, and to launch a statewide public outreach campaign that ensures California’s most vulnerable communities have access to life-saving disaster preparedness resources.

Cal OES has awarded $20 million to community-based organizations in 24 counties across the state to provide emergency preparedness education and to support communities as they develop new, uniquely tailored disaster preparedness approaches through peer-to-peer networks. Grants were divided into targeted county and statewide funding. This funding will also support animal management preparedness research and resources.

In May 2019, during the California For All CERT and Listos Preparedness Conference in San Diego, all of the volunteer teams associated with this effort were officially activated to build and expand their local-level efforts around preparedness.

An emergency regulation requiring employers to protect workers from potential harm due to wildfire smoke may give way to a more stringent rule. The emergency regulation adopted by the California Division of Occupational Safety and Health (Cal/OSHA) Standards Board last month and taking effect on July 29 requires California employers to take steps to protect workers from potential harm due to exposure from wildfire smoke.

Some of the steps required in the emergency rule (which kicks in when air quality erodes to specified levels) include relocating workers to other sites or providing respirators in the most severe circumstances.

Last week, the California Chamber of Commerce learned that Cal/OSHA is considering significant changes to the rule that would lower the threshold levels which trigger the need for employer action. A discussion draft circulating from Cal/OSHA this week proposes lowering the Air Quality Index (AQI) threshold from 500 to 300 for mandatory respirator use and 150 to 100 AQI for voluntary respirator use.

In addition, there is a new consideration in the discussion draft that proposes requiring all structures and vehicles to contain minimum MERV (Minimum Efficiency Reporting Value) filter levels in buildings and structures in order to be exempt from the regulation—which would greatly broaden the application of the regulation.

The CalChamber and a coalition of employer groups have been closely following developments on this rule at every stage of the process. The CalChamber is continuing to evaluate this new discussion text and will provide formal comments as part of the regulatory process, but, at this point, it is clear the coalition will be communicating its concerns regarding the drastic lowering of all trigger thresholds from the levels approved by the Standards Board just last month. Much concern comes as a result of the discussion around lowering the mandatory respirator use threshold to 300 which could effectively shut down urban areas in the event of a wildfire.

For example, during the 2018 wildfires, Sacramento’s downtown center occasionally exceeded an AQI for airborne particulate matter (PM) 2.5 of 300—meaning that if the draft regulation had been in effect, it would have forced businesses to either fit test and medically evaluate all employees who might be outside for more than an hour, or to shut down.

Given the cost and burden of ongoing fit testing and medical evaluation for all employees, and the rarity of such AQI levels, most businesses will simply shut down at the proposed 300 AQI standard. This won’t help either employees or businesses as employees will be sent home, where they may have no access to respiratory protection.

In contrast, the 500 AQI standard in effect under the emergency regulation provides mandatory protection for those truly extreme circumstances, when the AQI exceeds 500, but also allows businesses to continue functioning (and providing respiratory protection) in the event of a wildfire.

Regarding MERV filtration, the CalChamber is concerned that setting this standard transforms the regulation from focusing on outdoor workers to an all-encompassing regulation on air quality. This regulation began based on a petition for a standard to protect outdoor occupations such as agriculture—and the Standards Board’s adopted decision echoed that goal.

The CalChamber believes if Cal/OSHA intends to expand this regulation into regulating the air filtration of every business and vehicle in California, there will be potentially massive costs that must be shouldered by California’s business community.  This story was produced and originally published by CalChamber.

Legislative Update

Insurance-related

AB 47 (Daly) Requires the Department of Motor Vehicles (DMV) to assess a point on a person’s driving record for any conviction of operating a handheld wireless communications device that occurs within 36 months of a prior conviction for the same offense, if the second violation occurs after July 1, 2021. One-time DMV programming costs of up to $100,000 to make system changes allowing for the imposition of a violation point on drivers’ records. Status: Passed the Senate Appropriations Committee, 6-0. Sent to Senate Floor. 

AB 295 (Daly) Modifies the definition of "working capital" for underwritten title companies (UTCs) to prevent unintended consequences that could result from accounting changes adopted by the Financial Accounting Standards Board (FASB), and increases the minimum working capital required of a UTC from $10,000 to $25,000. Status: Passed by the Senate, 39-0. Passed the Assembly on Concurrence, 76-0. Sent to Enrollment. 

AB 1065 (Berman) Repeals the sunset provision in the statute authorizing insurers to transact insurance online. Status: Passed by the Senate, 40-0. Passed the Assembly on Concurrence, 76-0. Sent to Enrollment. 

SB 534 (Bradford) Requires, in every even-numbered year beginning in 2020, an insurer to report to the Department of Insurance its minority, women, LGBT, veteran, and disabled veteran-owned business procurement efforts during the previous two years and requires an insurer to report to the DOI on its governing board and board diversity efforts during the previous two years. Status: Passed by the Assembly, 61-4. Sent to Senate for Concurrence of Assembly amendments. 

SB 537 (Hill) Requires third-party networks that arrange physician and ancillary medical services for employers, but that do not qualify as “Medical Provider Networks” (MPNs) as that phrase is used in the Labor Code, to disclose to employers “rate sheets” that show the discounted prices paid to providers, and makes several additional amendments to the laws governing MPNs. Costs to the Department of Workers’ Compensation of $700,000 to 800,000 for research, reporting, and information technology upgrades and $200,000 for ongoing for implementation. Status: Placed on Suspense File in Assembly Appropriations Committee.

SB 740 (Mitchell) Requires insurance companies to use the Social Security Administration's Death Master File (DMF) to identify beneficiaries of deceased and other policyholders and advise the beneficiaries of available benefits and how to file claims. Status: Passed by the Assembly, 75-0. Sent to Senate for Concurrence of Assembly amendments.

Labor-related

AB 170 (Gonzalez) Requires a client employer to share with a labor contractor all civil legal responsibility and civil liability for harassment, as defined, for all workers supplied by that labor contractor. Status: Re-referred to Senate Appropriations Committee.

Business-related

AB 719 (Rubio) Makes it a misdemeanor, on or after March 30, 2022, to sell the dead body, or any part or product thereof, of a crocodile or alligator unless manufacturers develop a technology or process to "track and trace" these products in order to verify they are coming from sustainable sources. Status: Placed on Suspense File in Senate Appropriations Committee.

SB 54 (Allen) Enacts the California Circular Economy and Plastic Pollution Reduction Act to achieve a 75% reduction in single-use packaging and priority single-use plastic products, as defined, by 2030. CalRecycle estimated, on a previous version of this bill, costs of approximately $6.4 million initially and $6.3 million annually ongoing from the Integrated Waste Management Account (IWMA) for 46.5 permanent positions. CalRecycle also estimates $16.8 million one-time IWMA costs, over a three-year period, for contracts to develop database systems that track and store product information and recycling rates and $1 million IWMA annually ongoing for database service and support. Status: Placed on Suspense File in Assembly Appropriations Committee.

Governance-related

AB 176 (Cervantes) Requires California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) as part of the application process, to evaluate any loss in permanent full-time jobs that result from the project; and directs CAEATFA to also evaluate the average and minimum wage of any full-time employees proposed to be hired or not retained. Status: Placed on Inactive File in Senate.

AB 881 (Bloom) Expands the types of Accessory Dwelling Units (ADUs) that a local government must permit and, until January 1, 2025, prohibits local agencies from requiring owner-occupancy of ADUs. Department of Housing and Community Development costs of approximately $90,000 in the first year and $83,000 annually thereafter for ½ PY of staff time to provide additional technical assistance to local agencies regarding their ADU ordinances. Status: Placed on Suspense File in Senate Appropriations Committee.

SB 13 (Wieckowski) Places additional restrictions on the conditions local governments may impose on accessory dwelling units (ADUs), including: (a) limiting the ability to charge developer fees, impose specified parking standards and establish minimum square footage requirements; (b) prohibiting, for five years, the imposition of owner-occupancy requirements; and (c) reducing the timeframe for ministerial approval of ADU permits. Department of Housing and Community Development (HCD) estimates ongoing staffing costs of approximately $328,000 annually to provide technical assistance, review and comment on ordinances, and refer ordinances that violate state law to the Attorney General, as well as possible $1.1 million costs to HCD for reimbursements to the Department of Justice for staffing and litigation. Status: Placed on Suspense File in Assembly Appropriations Committee.

Health-related

AB 1175 (Wood) Places various requirements on the Department of Health Care Services (DHCS), the external quality review organization, county mental health plans, and Medi-Cal managed care health plans related to mental health (MH) services provided to Medi-Cal enrollees, information sharing between plans, continuity of care, and other responsibilities to improve Medi-Cal MH service delivery. DHCS anticipates up to $1.3 million in FY 2019-20, and $702,221 in FY 2020-21. Status: Placed on Suspense File in Senate Appropriations Committee.

AB 1246 (Limón) Requires a large group health insurance policy, as of July 1, 2020, to cover medically necessary basic health care services and would prohibit a large group insurance policy from imposing annual or lifetime dollar limits on basic health care services or medically necessary prescription drugs. Costs to the Department of Insurance is estimated at $556,000 in FY 2020-21, $173,000 in FY 2021-22, and $74,000 in FY 2021-22 and ongoing, for the Department of Insurance (CDI) to revise large group forms for compliance, and negligible impact to the Department of Managed Health Care. Status: Placed on Suspense File in Senate Appropriations Committee.

SB 129 (Pan) Requires annual health plan and insurer enrollment reporting to include enrollment data for products sold inside and outside of Covered California, any other business lines, and multiple employer welfare arrangements; and requires the California Department of Insurance (CDI) and Department of Managed Health Care (DMHC) to publicly report annual enrollment data no later than April 15th of each year. Status: Passed by the Senate on Consent, 39-0. Sent to Enrollment.

SB 343 (Pan) Removes medical cost trend reporting exceptions specific to a health plan that uses an integrated delivery system (Kaiser Foundation Health Plan, Inc.), thereby requiring such a plan to report medical cost trend information to the Department of Managed Health Care on a disaggregated basis by service category, similar to the manner in which other plans report. Status: Passed by the Assembly, 58-13. Sent to Senate for Concurrence of Assembly amendments.