Quick Take
State Insurance Commissioner Ricardo Lara told 140 attendees of an online event organized by the Rural Bonny Doon Association on Wednesday night that his overhaul of the state insurance market is expected to be ready for implementation by December. Other insurance experts spoke of ways homeowners could improve their chances of finding coverage in a market situation made dire by the threat of wildfires in Santa Cruz County.
California Insurance Commissioner Ricardo Lara told about 140 homeowners attending an online event organized by the Rural Bonny Doon Association on Wednesday night that help could soon be on the way to address an insurance crisis that many Santa Cruz County residents are facing amid the threat of wildfires. He’s planning a set of executive actions aiming to improve the situation that will be ready to implement by December.
Along with so many others in California, Santa Cruz County homeowners have been losing their homeowners insurance policies in huge numbers in recent years. At an insurance forum in Scotts Valley in mid-May, an analyst from Lara’s office told Lookout that 15,000 homeowners in the county were in the process of “non-renewal” at the time.
In April, State Farm Insurance notified about 4,300 Santa Cruz County residents that it would not renew their home insurance policies. That was just a fraction of its larger statewide cut, as the company anticipated that it would not renew policies for about 30,000 individual homeowners, along with commercial policies covering 42,000 apartment buildings. Several major companies, including State Farm, Allstate, Farmers and Nationwide, have all limited or paused new policies for people living in “high-risk” areas of California.
Others speaking at Wednesday’s forum included 28th District State Assemblymember and former longtime Santa Cruz County Clerk Gail Pellerin, Personal Insurance Federation of California Vice President Seren Taylor, United Policyholders program specialist Joel Laucher, director of the Santa Cruz County Office of Response, Recovery and Resilience Dave Reid, and Edan Cassidy and Jessica Murawsky, managing member and assistant manager, respectively, at Scotts Valley-based Cassidy Insurance Agency.
Lara’s executive actions, called “California’s Sustainable Insurance Strategy,” consist of several main components:
- Requiring insurance companies to write no less than 85% of their statewide market share in high-wildfire risk communities. That means that if a company writes 20 out of 100 homes statewide on average, it will be required to write 17 out of 100 homes in a high-risk community.
- Moving homeowners currently on the state-driven FAIR Plan back to the traditional market, prioritizing those following the state’s “Safer from Wildfires” framework — a list of actions created in partnership with state emergency preparedness agencies meant to keep people safe and reduce risk for property owners. The FAIR Plan, meant for homeowners in “high-risk” areas of California who can’t secure private insurance-market coverage, is traditionally the last resort. But now, many homeowners have found it to be their only choice, leaving them with an expensive, but weak, insurance option.
- Incorporating new catastrophe models that take one’s mitigation and preparation measures into consideration, which would lead to more appropriate risk evaluation and offer discounts.
- Expanding FAIR Plan commercial coverage limits to $20 million per structure for homeowners associations, affordable housing and infill developments — facilities built on previously unused or underutilized land within otherwise developed areas. The current limits are $8.2 million.
Lara said the plan is a “bold move,” but that’s what is needed during what he called an unprecedented insurance crisis. He added that his reform would be the largest state insurance reform in 30 years.
“Insurance companies are increasing the rates legally, but they’re not writing more policies, and that is the problem we want to fix as quickly as possible,” he said.
Lara said that he is aiming to implement most if not all of the reforms as soon as 2025, and will be encouraging insurers to be ready to comply with all of the new regulations and rates. He also said that he is confident the strategy will work as intended.
“We’ve had direct conversations with insurance companies that made it very clear that these changes are not only what they’ve been asking for for years, but we’re also putting the appropriate consumer protections to make sure that you’re protected,” he said.
Cassidy said that, while he is happy to hear the direction Lara’s office is heading, he is not optimistic about its hopeful timeline.
“The idea that this will be across the finish line in December, that carriers will submit rate filing requests by Jan. 1, and that the solution is just around the corner — no way,” he said. “It’s way off in the future, so it doesn’t change the current state of affairs of the insurance market in Santa Cruz County.”
Cassidy pointed to Proposition 103, which passed in 1988, implemented a minimum 20% rate reduction for property and casualty insurance and began requiring a public hearing and insurance commissioner approval for rate changes. He said that the benefits of that regulation appear to have run their course.
“It was not designed to evolve with climate change and periods of runaway inflation, let alone a pandemic,” he said. “When insurers are not able to price to the risk, they tighten the rules and they stop writing altogether. In addition to the non-renewals that we’re all familiar with, all major insurance carriers have been approved for or await major rate increases.”
Pellerin said she has major concerns about the FAIR Plan, too: “I feel like we’re one big disaster away from it imploding, and people just losing everything.”
Reid spoke to the apparent randomness of the non-renewals. He said he’s spoken to county residents who live in low-risk, urban areas who are also getting dropped by their insurance companies. He added that although safeguarding your home, working to create defensible space and updating fire safety features should theoretically lower your risk of receiving a non-renewal, it doesn’t seem to be helping much at the moment.
“It’s somewhat arbitrary right now, and you can be dropped anywhere,” Reid said. “This notion that anything that you do at your home level is going to change their evaluation of your home is probably, right now, pretty unlikely.”
Given that high level of uncertainty, experts urged residents to be prepared. Laucher of United Policyholders shared the Department of Insurance’s 10 tips for finding residential insurance, and said that people can call the residential insurance company contact list to get a quote or referral to an agent from one of those companies. However, finding coverage is not guaranteed.
“You may want to try every one of them just to give it a shot,” Launcher said. “It will take a lot of patience to deal with it and you may have to deal with a lot of rejection, potentially. But if you’re rewarded by finding something, that’s awesome.”
Cassidy implored those seeking home insurance to use an independent agency or broker, like his company. “And that’s not just for ourselves. Independent agents don’t work for an insurance company, we have fiduciary responsibility to the customer,” he said. “You should find one that has numerous markets, is ethical, has your best interests at heart, and understands your community and your risk.”
Of course, those who are non-renewed can take up the last-resort FAIR Plan. However, Department of Insurance Deputy Commissioner Julia Juarez had a clear piece of advice: Continue shopping.
“If there is another agency that might be able to give you insurance, most likely, it will be at a much lower rate than the FAIR Plan,” she said.
Have something to say? Lookout welcomes letters to the editor, within our policies, from readers. Guidelines here.