Who Can Fix California’s Homeowners Insurance Woes? Insurance Commissioner Race Heats Up

By Sharon Byrne   |   April 26, 2022
Senator Limón and Insurance Commissioner Lara at the Montecito Association, September 2019 (photo by Sharon Byrne)

Things are getting hotter regarding California homeowners insurance, and threat of wildfire is just one factor. Insurance Commissioner Ricardo Lara is up for reelection this year and at least one candidate is laying out a viable case to replace him. 

Last week, former California Insurance Commissioner Steve Poizner (2007-2011) ran an op-ed in the Los Angeles Times titled “Wildfires never threatened my home. But my insurer said they do — and dumped me.” Poizner’s story will be familiar to many in Montecito struggling to obtain homeowners insurance. He lives in a hilly area in San Jose, and cleared brush for defensible space, put in the ember-resistant vents, etc. He was renewed year after year, until now. Here’s what his insurance company finally admitted as to why he wasn’t renewed:

His home is suddenly “’ineligible due to the wildfire risk assessment of the dwelling location’…Eventually, the company revealed that it now relies on confidential software that predicts wildfire risk by geographic regions in California. But the insurer was unwilling to share details with me. The new approach ignores steps that people take to protect their homes by following guidelines from fire prevention authorities.”

Present California Insurance Commissioner Ricardo Lara’s response ran Monday in the Los Angeles Times, referencing his proposed “Safer from Wildfires” framework to protect existing homes and communities. Lara issued a press release on February 25 saying that insurance companies would be required to factor consumers’ and businesses’ wildfire safety actions into their pricing of residential and commercial coverage. The new regulations also will provide consumers with transparency about their “wildfire risk score” that insurance companies assign to properties. 

Assemblymember Marc Levine visits Montecito on April 14, 2022 (photo by Sharon Byrne)

On April 13, we attended the public hearing on this proposal. We’ve been working with Lara’s office since 2019, when a slew of Montecitans received non-renewal notices. Chubb was busily shedding their previous 60% market penetration in Montecito, and AIG stopped writing policies. We worry about Montecitans on fixed incomes, whose premiums increased tenfold, possibly rendering them unable to remain in their home.

In this and prior hearings, insurers blame the Insurance Commissioner. They purport they need to increase rates to adequately cover their risks. If they want to increase their rates more than 7% annually, a public hearing is required. Public pressure naturally flares at the hearing. So, insurers just raise rates annually by 6.9%, and then drop people in high-risk areas, forcing them onto the market to buy less coverage at much higher rates.

None of this is surprising. Insurers are seeking to avoid financial losses in markets affected by climate change. The United Nations produced a report in 2021, working with insurers worldwide, on adjusting financial models for climate risk. People in certain flood and hurricane zones are finding insurers have fled the market, as Californians have experienced, for high fire risk. 

We support Lara’s move to get insurers to take community-hardening efforts into account. Montecito Fire has done an excellent job on this front, creating the first Community Wildfire Plan, preparing evacuation studies, helping homeowners clear brush, chipping programs for overgrowth, and hiring sheep to graze our mountainous areas. These efforts are community-wide and should be considered along with an individual homeowner’s efforts to defend their property from fire danger. 

There are other approaches also in the works.

Last Thursday, Assemblymember Marc Levine (D-10th District, Marin) visited Montecito. He’s running for Insurance Commissioner, against Lara. On February 3, Levine introduced AB1755:

  • Requires an insurance provider licensed in the state to issue a policy to a homeowner that has sufficiently hardened their property from wildfire risk.
  • Effective beginning 2025. 
  • Creates the Wildfire Protection Grant to provide up to $10,000 for homeowners to help pay for costs associated with home hardening and wildfire mitigation improvements.

The bill is currently in the Assembly Committee on Insurance.

At the Randall Road Debris Basin, Levine said he wants to be an ‘activist’ insurance commissioner, unafraid of getting sued by the industry. Levine suggested a penalty where insurers have to refund 25% of your past premiums when they drop you after years of faithful premium payments and fire-hardening, like what happened to Poizner. This is a very interesting idea. 

Levine also favors the creation of a good homeowner discount, similar to the good driver discount. Hardening your home and installing burglar alarms and deterrents should be rewarded because they reduce liability and claims. 

The Industry Response. Re: AB1755, the American Property Casualty Insurance Association “is opposed to any bill that mandates insurance companies provide insurance without adequate rates and without science-based verification the risk has been reduced.”

The industry has their own vehicles for developing “science-based mitigation standards that actually reduce risk.” Naturally, they want their standards implemented. In addition, the APCIA said, “The bill also ignores the need for community hardening efforts. In the absence of community hardening, home hardening can be far less effective. Embers travel miles, igniting homes randomly. We must have a comprehensive community and individual mitigation effort along with a verifiable risk reduction process.”

Well, that sounds like everything Montecito has been doing! Ricardo Lara’s bill moves more in that direction, requiring insurers to take community hardening efforts into account in pricing and offering coverage. But it doesn’t mandate coverage, so I suspect a lot of horse-trading will lie ahead in negotiating details of what insurers consider ‘enough’ hardening to create significant reduction of risk. 

Both approaches have merit, and both would help Montecito. Watch these pages as the situation, and the race, develops. 

Sharon Byrne is the Executive Director of the Montecito Association


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