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Insurance Commissioner Imposes First-Time, Statewide Insurance Moratorium in California

PLEASANTON, CA, Dec. 5, 2019 - California Insurance Commissioner Ricardo Lara's decision today to issue a mandatory one-year moratorium on insurance companies non-renewing policyholders in wildfire designated areas is a recognition of the problem facing California insurance consumers, but his action acts as a band-aid and not a cure, IIABCal President Rob Oates said.

“We appreciate the Commissioner’s recognition of the current problems in the homeowners insurance marketplace, and his desire to take action that would help consumers find, and retain, affordable insurance coverage,” Oates said.  “However, the order addresses none of the underlying reasons for the affordability and availability problems in the marketplace.  This is a band-aid, not a cure.”
 
Oates said IIABCal legislative advocates have been influential in shaping scores of bills introduced in the last several years in the California Legislature, attempting to provide relief to stricken homeowners and independent insurance agents and brokers, but also to prevent measures that would reduce future marketplace competition or drive prices needlessly higher.

Lara issued a mandatory the one-year moratorium on insurance companies non-renewing policyholders--helping at least 800,000 homes in wildfire disaster areas in Northern and Southern California. The commissioner’s action is the result of Senate Bill 824—authored last year by Lara while serving as state senator—in order to give temporary relief from non-renewals to residents living near a declared wildfire disaster. This is the first time the department has invoked the new law, which took effect in January.

IIABCal Fears Counter-Intuitive Effect
 
IIABCal General Counsel Steve Young said he feared that the Commissioner’s order could have the counter-intuitive effect of aggravating problems of availability by making the California marketplace even less inviting to insurers. 
 
“Some insurers undoubtedly view the regulatory environment in California as even more challenging to their profitability than the risk of loss posed by changing climate, and all of the various geographic and geologic factors,” Young said.  “Under prior insurance commissioners, the process within the California Department of Insurance for obtaining approval of rate change applications has been so politicized, time-consuming, and unpredictable, that some insurers believe it’s hard to get actuarially-justified rates approved.
 
“Homeowners’ insurance policies have historically been developed and priced in single-year installments.  By ordering insurers to remain on policies indefinitely, this action in the longer term could unfortunately frighten away new insurers and additional capital from the marketplace,” he said.

Because the homeowner insurance crisis extends beyond the wildfire perimeters and impacts residents statewide, Commissioner Lara went a step further and called on insurance companies to voluntarily cease all non-renewals related to wildfire risk statewide until December 5, 2020, in the wake of Governor Gavin Newsom’s declaration of statewide emergency due to fires and extreme weather conditions. A statewide moratorium would provide all California homeowners, renters, and businesses peace of mind, and allow time for stakeholders to come together to work on lasting solutions, help reduce wildfire risk, and stabilize the insurance market.

Years In The Making, Lara Says
 
“This wildfire insurance crisis has been years in the making, but it is an emergency we must deal with now if we are going to keep the California dream of home ownership from becoming the California nightmare, as an increasing number of homeowners struggle to find coverage,” said Commissioner Lara. “I am calling on insurance companies to push the pause button on issuing non-renewals for one year to give breathing room to communities and homeowners while they adapt and mitigate risks, give the Legislature time to work on additional lasting solutions, and allow California’s insurance market to stabilize.”
 
Commissioner Lara announced the action at a home in Oakland alongside local leaders from affected areas and consumer advocates, following months of meetings across the state with county officials, community leaders, and more than 2,000 homeowners who have been non-renewed and struggled to find new coverage.
 
“As communities across California continue to recover from wildfires and natural disasters, insurance companies are critical partners in helping our communities rise up,” said Sonoma County Supervisor James Gore, who serves as second vice president of the California State Association of Counties. “The inability to obtain insurance after disaster strikes impacts home values and tax revenues for emergency services that help ensure the integrity of California communities. On behalf of Sonoma County and every county statewide navigating the rebuilding and recovery process, we call on our insurance partners to help us move toward a more resilient future.”
 
The mandatory one-year moratorium covers more than 800,000 residential policies in ZIP Codes adjacent to recent wildfire disasters under the newly enacted Senate Bill 824 (Lara, Chapter 616, Statutes of 2018), also known as the Wildfire Safety and Recovery Act. While existing law prevents non-renewals for those who suffer a total loss, the new law established protection for those living adjacent to a declared wildfire emergency who did not suffer a total loss—recognizing for the first time in law the disruption that non-renewals cause in communities following wildfire disasters.

Home Insurance Not A Luxury
 
“Home insurance is not a luxury - it's a necessity. Yet for hundreds of thousands of Californians it's become almost impossible to find and afford. This puts people between a rock and a hard place, and communities up and down the state are hurting,” said Amy Bach, Executive Director of United Policyholders. “At United Policyholders we are doing all we can to help consumers deal with this situation and we thank Commissioner Lara for authoring the moratorium bill and agreeing to take further action with a statewide voluntary moratorium.”
 
Following Governor Newsom’s emergency declarations in October, the Department of Insurance partnered with CAL-FIRE and the Governor’s Office of Emergency Services to identify wildfire perimeters and adjacent ZIP codes within the mandatory moratorium area. Today’s bulletin includes seven of the 16 wildfires within state-declared emergency areas, and CAL-FIRE is working to identify perimeters for the remaining nine fires, which the Department of Insurance will announce in a separate bulletin.
 
Commissioner Lara’s action comes amid growing evidence that homeowner insurance has become more difficult for Californians to obtain from traditional markets, forcing them into more expensive, less comprehensive options such as the FAIR Plan that do not offer the same level of coverage or protections.

In August, the Department of Insurance released data revealing insurance companies are dropping an increasing number of residents in areas with high wildfire risk. The number of non-renewals rose by more than 10% last year in seven counties from San Diego to Sierra—a direct response to California’s recent devastating wildfires. The number of consumers covered by the FAIR Plan—California’s insurer of last resort —has surged in areas with high wildfire risk. According to the U.S. Forest Service, more than 3.6 million California households are located in the wildland urban interface where wildfires are most likely to occur.
 
Today’s action builds on Commissioner Lara’s order last month to modernize the FAIR Plan and strengthens our insurance safety net. No later than June 1, 2020, the FAIR Plan will expand its coverage to offer a full homeowners policy in addition to its current limited fire-only policy. By April 1, 2020, the FAIR Plan will increase the Dwelling Fire combined policy limit from $1.5 million to $3 million, in recognition of higher home values. By February 1, 2020, the FAIR Plan will offer a monthly payment plan without fees and allow people to pay by credit card or electronic funds transfer without fees.

IIABCal Requests Meeting
 
Oates said IIABCal is asking for a meeting with Commissioner Lara to discuss not only its concerns about this order, and recent changes he has made to California FAIR Plan policies, but also to discuss longer term responses to the underlying problems in the homeowners insurance market.

Additional Media Information For Agents and Consumers:

Commissioner Lara Announces Insurance Strike Team During Meetings with County Leaders (Department of Insurance Press Release, August 8, 2019)

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