Why Ricardo Lara says his plan to fix California’s insurance crisis will work

You’re a California homeowner who just spent thousands of dollars to protect your property from wildfires — and saved maybe $100 on your insurance bill. 

Could grants to low- and middle-income residents help? That’s an idea California Insurance Commissioner Ricardo Lara wants to bring to the Legislature next year, he said in conversation today with CalMatters’ economy reporter Levi Sumagaysay.

Lara discussed his multi-pronged approach to the insurance crisis — with companies decreasing coverage, raising premiums for residential and commercial customers, or leaving the state altogether. Part of the plan includes speeding up the state’s reviews of insurance companies’ proposed rate hikes — which are supposed to take 60 days, but often take as long as 18 months, by which time rates might not reflect the risk anymore. 

“This was completely ignorant on my part as a new insurance commissioner. I’m like, ‘Okay, we’re reviewing these rates. We’re done, right?’ They’re like, ‘Oh no, there is a whole backlog,’” he said during the hour-long CalMatters event in Sacramento, adding that companies often submit another rate review immediately after one is done because of the long wait times. 

Another significant change Lara is pushing to make insurance more available: For California to come out of the “dark ages” to join other states in allowing insurance companies to do “catastrophe modeling.” That would allow them to take projected losses into account – not just historical information — using data such as frequency, severity, damage and loss from wildfires and other natural disasters. Insurers can start using the modeling to set rates next year.

While companies are allowed to keep the modeling private, Lara promised there will be safeguards in place to ensure data and transparency. 

“We’re doing this from scratch,” he said. 

Lara also wants to tackle problems with the FAIR Plan — a “last resort” insurance plan required by state law that offers minimum coverage for wildfires. His plan is to raise the amount of coverage. Run by a pool of insurers, the FAIR Plan has grown to 400,000 policies. 

While he worries about “Armageddon” scale disasters, Lara said the recent flurry of wildfires in Southern California don’t undermine his proposals, noting that he issued emergency declarations to protect 750,000 policyholders from losing coverage. 

“I’m so confident in my plan,” he said. “I know it’s going to work.” 

But consumer groups and Lara’s predecessors as insurance commissioner have expressed concerns that his plan favors insurers.

What’s not in Lara’s proposals? Requiring insurers to address climate change in the regulations. 

“My immediate goal is to stabilize this market now, to get insurers to come back, to grow, and then we’re going to be having conversations on separate issues, separate requirements that we can look at,” he said.