Lara Plan Leaves Home, Condo, Apartment Insurance Unaffordable and Unavailable, Says Consumer Watchdog

SACRAMENTO, Calif., June 12, 2024 /PRNewswire/ -- Home insurance will remain unaffordable and unobtainable for many Californians under new rules proposed by Insurance Commissioner Ricardo Lara today, said Consumer Watchdog.

The proposed regulations purport to require insurance companies to increase sales to homeowners in "distressed areas." However, the proposal would not require insurance companies to charge a price that consumers are able to afford, and the requirement could be waived if insurers cannot meet it. In return, insurance companies will get double-digit price hikes from allowing insurance companies to use unverifiable secret algorithms to set prices. That will drive insurance premiums even more out of reach for many Californians, said Consumer Watchdog. 

"Insurance Commissioner Lara's plan gives insurance companies two years to comply but they can start to charge more immediately. After two years, if insurance companies can say they can't meet their goals the commissioner can just move the goal posts. This was the one consumer benefit in Lara's proposal but the exceptions swallow the rule," said Carmen Balber executive director of Consumer Watchdog.

The proposal:   

• Coverage commitments do not begin for 2 years while insurance companies would be able to raise rates using black box models immediately.
• Lets insurance companies off the hook if they fail to meet their commitments. An insurance company that has not met commitments after 2 years has only to show it is "taking reasonable steps to fulfill its insurer commitment." Another section allows insurance companies that can't meet their goals to propose "alternative commitments" for many reasons, including high claims. 
• Sets an even looser commitment for commercial (including large condo and apartment complex) policies.
• The proposal does not apply to small insurance companies or those newly entering the market. Insurance companies that recently stopped writing all policies in California could be allowed to return and still refuse to sell in "distressed areas." 
• Companies will not have to prove they met their commitment publicly.
• Allows insurance companies to continue redlining whole distressed zip codes or even counties.
• Does not link the pass-through to consumers of the unregulated price of reinsurance to the commitment for expanded sales. Commissioner Lara has previously testified this provision would also be connected along with models. 

"A promise to expand coverage with unaffordable policies isn't going to get California home, condo and apartment owners insured again. What happens when companies fail to meet their commitment because premiums are out of consumers' reach? The Commissioner will be allowed to waive the commitment," said Balber. "The way to guarantee more Californians coverage is to require insurance companies to sell to every homeowner who does the right thing and protects their home from wildfire."

The use of black box models and imposing reinsurance costs on consumers have both failed to stabilize the insurance market in California. Floridians' home insurance rates are two and a half times those in California. Florida's version of the FAIR Plan has nearly 20% of the market, compared to California's 4%, and insurance companies have still abandoned the state. 

"The Commissioner's whole plan could turn California into Florida, where insurance companies got everything they want and people still can't get coverage," said Balber.

SOURCE Consumer Watchdog