State regulators will speed reviews of rate hikes sought by home insurers amid wildfire losses (2024)

The state insurance commissioner took action Friday to speed up reviews of rate hikes sought by home insurers after efforts to address the issue through fast-track legislation got bogged down amid opposition from a consumer group.

California Insurance Commissioner Ricardo Lara issued a bulletin outlining steps his department would take to more quickly reach a decision on whether to decline, approve or amend applications from insurers, who have pulled back from the state’s market amid wildfire losses.

It now takes on average about seven months for insurers to get decisions on their rate applications — an untenable pace as insurers such as State Farm, Farmers and others have either declined to renew some policies or stopped writing new ones.

“Consumers are hurting, businesses continue to lose coverage, wildfires are ravaging our state — and we do not have the luxury of time,” Lara said in a written statement accompanying his announcement.

The bulletin is an element of the commissioner’s Sustainable Insurance Strategy, a package of wide-ranging reforms intended to stabilize the home insurance market.

In May, Gov. Gavin Newsom said that he was proposing a so-called “trailer bill” to be adopted as part of the state budget in July that would require regulators to complete their review of insurers’ rate applications within 60 days, though the language also allowed for extensions.

However, the bill was not introduced amid opposition from Consumer Watchdog, the L.A. consumer group that was key to passage in 1988 of Proposition 103, the landmark insurance reform initiative that provided for an elected insurance commissioner with authority to deny insurer rate hikes. The group worried the proposal would weaken consumers’ voice in the review process.

The bulletin issued Friday calls for the department to review a complete rate application within 60 days, and if more time is needed to make a decision, regulators must outline their position on what remains unresolved. It also allows for two more 30-day extensions, after which the department would issue an “estimated” rate the company could accept or reject. If it is rejected, the process would continue with 30-day extensions.

Home insurers who seek rate hikes in excess of 7% cannot implement the estimated rate without the consent of intervenors, such as consumer groups, if they have been granted the right to take part in the review process and have petitioned for a hearing on the application. The bulletin also applies to other types of property and casualty insurance.

That language is similar to, though less detailed than, what the governor proposed in May. As a bulletin, it serves to “clear the air” about the department’s obligations and does not constitute a new regulation, said Michael Soller, Lara’s deputy commissioner of communications.

Jamie Court, president of Consumer Watchdog, said the group remains concerned about the effort to speed regulatory reviews. He noted that under Proposition 103, consumer groups have only 45 days to file an application to intervene in the review process, with the commissioner given 15 days to approve their request — a 60-day process in itself.

“We don’t know all the unresolved issues until we have a back and forth with the company. This clearly short circuits the role of the public intervenor in the process and diminishes the voice of the public participant,” he said.

The group had sought to amend the governor’s proposal to clearly lay out the role of consumer groups in the process, he said, including by adding a provision that would not start the clock on the 60-day rate review until after the commissioner approves an intervention by a third party, if one was sought. He said Consumer Watchdog was making progress with its concerns in the Legislature when Lara decided to proceed with the bulletin.

Newsom declared his support of Lara’s action, calling it “necessary to address California’s insurance crisis,” in a statement included in the department’s announcement.

Currently, it has been the department’s practice to seek automatic waivers from insurers when it runs up against the 60-day rate review deadline already written into law by Proposition 103. Regulators then seek additional 30-day waivers as needed. It is this practice that the department and insurers have cited as a cause of the lengthy rate reviews.

Rex Frazier, president of the Personal Insurance Federation of California, a trade group of property and casualty insurers, said the bulletin appeared to be consistent with a larger overall agreement the department reached with the industry last year to make the market more attractive to insurers.

However, he said it remains to be seen how the changes are implemented, including the new requirement that regulators offer an “estimated” rate within 120 days of the initial rate filing.

“They can low ball that. It’s not like the department ever would be compelled to put anything in an estimated rate that they’re not comfortable with,” he said.

Court expressed the opposite concern, saying that the estimated rate could result in insurer rate giveaways. He said he expected the department would have to issue additional guidance on the meaning of an estimated rate.

Consumer Watchdog will closely watch how the bulletin is implemented on a case-by-case basis and would consider litigation if it decides the department is violating the language of Proposition 103, he said.

The department is developing what it calls a “data reconciliation tool” before it implements the rules — software that will prevent insurers from filing incomplete rate applications, which slow the review process by forcing regulators to seek additional information. The software is not expected to be ready until next year, Soller said.

Also Friday, Lara issued another bulletin barring insurance companies from canceling or not renewing policies for some 185,000 policyholders affected by the Park, Borel and Gold Complex fires.