California’s insurance crisis is worsening the housing crisis

OPINION – California’s homeowners insurance crisis is making it more difficult to build and buy affordable homes — and in some cases impossible. By restricting the supply of housing, particularly condominiums and multi-family housing, lack of insurance availability is driving up consumer housing costs and limiting the lowest priced homeownership option for consumers.

Home builders were reassured when Insurance Commissioner Ricardo Lara announced his “Sustainable Insurance Strategy.” Lara deserves credit for trying to address bureaucratic delays in insurance rate reviews that contribute to the problem. Making the regulatory process more efficient will help restore a competitive insurance market.  So will his plan to allow insurance companies to incorporate forward-looking catastrophic modeling and the cost of reinsurance into their rates.

Californians have long been served by some of the strongest insurance consumer protections in the nation. When insurers seek to change rates, they must submit extensive documentation to the Department of Insurance (CDI) to justify the request. Each request is reviewed by CDI’s Department’s lawyers, actuaries and insurance experts who advise the Insurance Commissioner to accept, deny, or adjust the proposed rate change. In addition, outside parties – or “intervenors”– can provide independent input to CDI.

Regulations created as outgrowth of Proposition 103 mandate that the review process for insurance rate increases should be completed within 60 days. However, under the current system approvals take nearly a year on average. This delay creates inefficiencies and burdens for insurers and consumers. No other industry is forced to wait a year or more to find out how much they can charge for a product or service.

The Commissioner’s proposed rate review reforms would enforce the statutory timelines for rate reviews and leave intact all regulatory standards for rate approvals required by Proposition 103. In fact, the Commissioner’s proposal doubles the approval time to 120 days – double what is written in Proposition 103. If there’s no decision made during that time frame, regulators will be required to write a detailed explanation of the unresolved issues. The process allows up to two additional 30-day extensions. After that, the department will issue a rate the insurer can accept or reject. Consumers will retain the full protection of regulatory scrutiny to guard against unjustifiable rate increases. Intervenors would still be able to participate in the process, but like all other parties, they would be required to work expeditiously.

Other reforms are needed to fix California’s broken insurance market. California is the only state in the nation that doesn’t allow insurance companies to factor in forward looking catastrophic modeling and reinsurance into their rates. Many other states have successfully integrated forward-looking modeling and reinsurance practices into their insurance markets. California does not have to reinvent the wheel to make these reforms work here.

The reforms proposed by Commissioner Lara are crucial steps towards addressing our intertwined insurance and housing crisis. The Insurance Commissioner’s common-sense proposals have broad support from farmers, small-business owners, affordable housing advocates like us, and many others, including Governor Gavin Newsom. But they face spirited opposition from lobbyists with the deceptive name of “Consumer Watchdog” who are working overtime to slow the reform process down.

Consumer Watchdog is sustained by the tens of millions of dollars it has collected in fees by acting as an intervenor in the rate-review process. By its own admission has no consumers as members. It gets paid by the hour for its services, thus has a self-interest in maintaining the sluggish rate review status quo.

But, slowing these reforms, leaving many Californians stuck with the only option of paying much more for much less insurance through the California FAIR Plan, is not pro consumer.

Progress on the critical reforms in Commissioner Lara’s Sustainable Insurance Strategy is urgently needed. Time is not consumers’ friend. Every week thousands of California homeowners and businesses are receiving non-renewal notices from insurers. They are left with the untenable choice of no insurance coverage or less coverage at a much higher cost. We can’t let another dangerous fire season come and go without action on these critical reforms.

It is time to make California’s insurance regulatory system work as intended – to protect consumers and ensure a stable insurance market in California. The Commissioner’s plan includes crucial reforms. More political leaders should join Governor Newsom’s call for action on the insurance crisis and quickly advance the Sustainable Insurance Strategy forward for the sake of all California consumers, businesses, and homeowners.

Dan Dunmoyer is President and CEO of the California Building Industry Association