Broken Promise: Rate Hikes Guaranteed, Coverage Expansion Dubious, After Lara's Secretive Model Reviews, says Consumer Watchdog

LOS ANGELES, Aug. 1, 2025 /PRNewswire/ -- Insurance Commissioner Ricardo Lara is breaking his promise to Californians by guaranteeing rate hikes without guaranteeing more coverage, said Consumer Watchdog today, following his approval of another black-box wildfire model for use in pricing home insurance. 

The confidential closed-door review of a model owned by insurance ratings agency Moody's, and two others over the last week, confirmed that modeling companies will not have to provide regulators or the public access to their models. The models' inner workings remain secret, denying regulators and the public the ability to test the validity of the rate hikes they will now drive.

Lara's actions implement part of his deal with the insurance industry allowing them to use secret models to raise rates without public justification of the reasons for those increases. In return, Lara promised Californians he would expand access to home insurance in wildfire areas. However, the rules implementing that promise give insurance companies multiple ways to avoid selling more policies to those who have lost coverage.

"Lara made a deal with the industry: let them raise rates with secret models, and in return, they'd offer more coverage in wildfire zones," said Carmen Balber, executive director of Consumer Watchdog. "Today's action fulfills the industry's wish list. But for consumers, the promised coverage has vanished into a maze of loopholes and delays. Nothing in the rules guarantees new sales to those who were non-renewed and dumped on the FAIR Plan." 

"Today's announcement is just more public relations cover for a strategy that is a direct assault on the transparency that Californians rely on to hold insurance companies accountable," said Will Pletcher, Litigation Director at Consumer Watchdog. 

Secret Models Guarantee Rate Hikes: The Department's review of the Moody's and Verisk wildfire catastrophe models — algorithmic pricing models insurance companies will now be allowed to use to increase rates in future rate filings—was conducted through a secretive, closed-door process known as PRID (Pre-Application Required Information Determination). While Commissioner Lara claims the review was open to the public, PRID lacks the procedural safeguards, transparency, and public access required under Proposition 103.

The commissioner's action will replace the current use of transparent data about wildfire claims to set prices with the unverified predictions of these algorithmic pricing models.

"You can't claim public participation while locking the public out of the data and deliberations that will now determine billions in future premiums," said Pletcher. "This is the antithesis of Proposition 103, which requires insurance companies to justify rate hikes in full view of the public."

No Guarantee of More Insurance Sales to Consumers: The Insurance Commissioner has widely claimed that insurance companies will have to cover more homeowners in exchange for the right to raise rates with these models' secret algorithms. However, the text of the regulation contains no such guarantee. As Consumer Watchdog has documented, the rule is riddled with loopholes allowing insurance companies to opt for token compliance rather than meaningful expansion. 

The regulation says insurance companies may commit to selling a number of policies in wildfire areas equal to 85% of their market share in less-risky areas. But it also allows insurance companies to instead say they will increase coverage in fire areas by just 5 percent. Companies may also opt for a third, undefined, "alternative commitment." The loopholes are explained in this KGO-TV story. 

Insurance companies then do not have to report they've met their commitments until two years after their rate hikes take effect. If after two years they have not sold more policies as promised, the regulation allows insurers to change their commitments. And there are no mandated penalties if a company fails. Ultimately, insurers may never be held responsible for increasing sales to Californians, said Consumer Watchdog.

Moody's and Verisk's significant financial conflicts of interest have also been ignored. The largest shareholder of insurance rating agency Moody's RMS is Berkshire Hathaway, through the Warren Buffett-owned insurance companies National Indemnity Co. and GEICO. Wall Street financial services companies The Vanguard Group and BlackRock Inc., which manage hundreds of billions in assets for insurance clients, are the second and third largest shareholders of Moody's. Vanguard and BlackRockare the largest shareholders of Verisk. 

These shareholders benefit financially if models push rates too high, and this conflict creates powerful financial incentives to use the models' undisclosed algorithms to artificially inflate insurance rates, said Consumer Watchdog. 

Meanwhile, private insurers continue to drive more and more Californians onto the FAIR Plan—which now covers nearly 600,000 policyholders statewide. Without enforceable requirements and stronger accountability, Lara's strategy won't deliver real coverage—it will entrench an overpriced, under–serving system where consumers lose and insurers win.

SOURCE Consumer Watchdog