Senate Standing Committee on Insurance

The Senate Insurance Committee will come to order. Good morning. Thank you, everyone, for joining us here today. For individuals wishing to provide public comments today, participant number is 877-226-8216 and the access code is 621-7161 as the Senate continues to welcome the public in person, we also offer teleconference participation for today's oversight informational hearing. We will be hearing both of the panels of witnesses on the agenda prior to taking any public comments.

Once we have heard all of the witnesses, we will have a public comment period for those wishing to make comments on today's agenda. We're here today because consumers continue to need our help. They continue to need us to advocate and ensure that they're being protected and that we look at some of the challenges currently facing the insurance market. Property insurance is not always the first thing people think of when there are climate change issues.

It's not until after catastrophes that we start assessing what's happening in our homes, in our communities, and the loss of property after we've taken stock of life. Yet after we overcome so many of the concerns, people continue to have issues again. Once we assess the devastation of any wildfire, any flood, we need to ensure that people have access to homes, they have access to financial resources after the fact. For some people, insurance may mean the difference between having a home after disaster or being homeless.

And I've heard countless stories of individuals struggling to find a home after the fact. And increasingly, those who live in disaster prone areas are faced with the challenge of whether they can keep their homes. And I know as a teacher also, I've talked to some families whose children suffer the consequences, their social emotional impacts after the fact.

When you have children being taken from their communities, not able to go back to school, hang out with their friends, their teachers, these are simple things, but they matter in the big scope of things. And again, we're trying to ensure that we continue to have a conversation about affordability and availability, and it's such an important issue to Californians. Unfortunately, the conversation about the challenges in the insurance market in California, they're not hypothetical. We continue to now see that. We used to speak in hypotheticals.

Now we have very serious examples of what's happening across our state as it pertains to wildfires, floods, the snowpack melting, and the issues go on and on. So today we want to just take stock of some of the challenges and the impacts to the consumers across our state and answer a couple of questions. In particular, we need to know how much worse is it going to get and what other challenges will arise from what's coming.

And as we now are moving into summer, we know that we continue to have hotter and hotter summers and wildfire seasons are longer and more devastating. So we need to tackle some of these questions and issues.

The purpose of today's hearing is to do our very best to answer not only the questions, but ensure that everyone's at the table, that every perspective is taken into consideration, and that everyone has the ability to give us their side so that we can come to the table and really be open minded about some possible solutions that will help consumers.

That at the end of the day, that consumers are at the heart of what we do here in the State of California and as it pertains to insurance. So thank you once again for all of you being here. We have a lot of great panelists that will give us a lot of insight, and so we appreciate your time. Today we will assess once again just challenges that are transforming our daily lives and in the process are placing new demands on the insurance market.

In our last information or hearing, we spent a lot of time on the freight plan and we heard some of those challenges. We heard from them in particular speak about how they were supposed to be the insurers of last resort, and now they've become competition and everyone is using them because of their inability to get insurance somewhere else. In the end, we come out from, I believe in my personal opinion, from the last informational hearing, with a lot more questions than answer.

And that's why we're here. We want to make sure that we continue the conversation, to make sure that we continue to tackle this very important issue.

And after listening to some of the gravity, the concerns raised by stakeholders from all sides last time, I came to the conclusion that we needed to step back a little and just look at the big picture and make sure that everyone feels included and heard, and that we all look at the information being presented here today with an open mind. Just by looking at all key moving pieces objectively, I hope that we can arm ourselves with good information that will help us get to a better place as it pertains to taking care of Californians.

So today we will hear from leading experts who will share valuable insights into the different components that help share our current insurance market here in California. We will hear from Harvey Rosenfeld, who's an advocate, who's worked tirelessly on behalf of consumers, who was also instrumental in passing the groundbreaking initiative of Prop 103 in 1988, and which has, again, we have to give credit where it's due was instrumental in keeping consumers from being gouged and saving them billions of dollars.

And so we appreciate the work that was done back in 1988 and everyone that was involved in those efforts. We will also hear from experts who will speak about the areas and factors that seem to be having great impacts on our current insurance market and consumers, as well as representatives of other affected groups. And so, once again, we hope that the voices are diverse from different perspectives and that everyone takes away a lot more information, that important information that they came in with.

So as we look for our solutions here, we need to really discuss what's at the heart of what's happening across not only our nation, but across the world, which is the topic of climate change and how it continues to challenge us to think in different ways and find solutions that before, I think you heard me say in the last hearing that when we passed Prop 103, I don't think climate change, the word climate change was even part of our daily vocabulary, and it has become. So again, thank you for all of you that are listening, not just here, but at home, if you're tuning in.

So the changes have already started to take effect in so many ways that we didn't think about in years past, affecting prices in the mortgage industry, bond market. We now know that we also have an element of wildfires that we normally don't discuss. And that's the impact that's having on our workforce, our firefighters. I've met with a lot of firefighters in different times after disasters, after fires, and some of them shared heartbreaking stories of having to be gone from their families for long periods of times.

They share some psychological challenges after the fact. They share the fact that some of the families are now, they're having challenges internally because they're gone away from their loved ones. And so their children are struggling, their wives are struggling, or husbands. And so we need to consider the impact, again to that, to our workforce and these individuals who fight really hard to ensure that we're safe when we do encounter wildfires.

So I really want to make sure that we thank our firefighters, but we also need to figure out ways to keep them safe and making sure that we keep families together and their children also in a good place. Thank you once again. With California communities increasingly being exposed to climate change related threats, I want to also thank Commissioner Ricardo Lara, who wrote the First Nation's first climate insurance law, SB 30, to explore innovative strategies to reduce risk.

I do take the time to speak and meet with the Insurance Commissioner because we know that working together again, all stakeholders that's the only way we're going to be effective in making sure that consumers are at the heart of everything that we do.

And so he's not here, but he has a representative who will be sharing some of the policies that they've been exploring through a group that they're convening, and they're going to share the research and some of the important work that they're doing at the Insurance Commissioner's Office. The crisis of climate change is now forever changing the way we see the insurance market. And so once again, thank you for Insurance Commissioner, for having those conversations with me.

I've talked to many consumer advocate groups, and also climate change continues to be the recurring theme in so many of our conversations. So we will start things off today by looking at the current laws governing the market. An overview of Proposition 103. Our speaker today is Harvey Rosenfield, founder of Consumer Watchdog and author of Proposition 103. So, Mr. Rosenfeld, there you are. Thank you. Thank you so much for being here.

And again, I just want to make sure that everyone has the opportunity to share information somewhat equally. So I will allow 15 minutes per presenter, and I will also give you a five minute warning so you know that it may be time to start wrapping up. So thank you very much for being here with us today. We appreciate your time and effort on this issue. You may proceed when you're ready. Thank you. Yes.

Thank you, Madam Chair, Members of the Committee, really, my name is Harvey Rosenfield. I'm the author of Proposition 103, the founder of Consumer Watchdog. I led the campaign for the passage of Proposition 103 in 1988, and we really appreciate the opportunity to speak about what Proposition 103 was, how it came about, some historical background, and why the reforms that the voters passed in 1988 are critically important today to protect California consumers, homeowners, property owners, condo owners, from what's happening in the insurance marketplace.

I'm going to apologize in advance for my seasonal allergies, which might at some point make me have to shut the microphone off. I'm going to start, if I can, by a little presentation about what was happening back in the day.

It. Okay, I'm ready for that help.

If you can hear my voice, I'm also suffering from some of the allergies. Okay, just feel free to start when you're ready.

So contrary to perhaps what many of you think, the crisis in the 1980s was not just about high insurance rates. That was a problem. But as these news clips from the 80s show, a big issue in the 1980s was that the skyrocketing auto, home and business insurance premiums were also accompanied by the inability of consumers, motorists, small businesses, big businesses, daycare centers, hospitals, to get insurance at all. The insurance companies withdrew from those markets.

You can see daycare centers, nonprofits, first responders, senior lunch programs, theater arts festivals, ranch owners, office architects, birthing centers, motorsports, car rental, fireworks, fishermen, even Halloween events. Couldn't find insurance restaurants on and on. One of the things that wasn't as high profile in the 1980s, but it was definitely a crisis, was the fact that the insurance companies were refusing to do business in certain neighborhoods. In our state, if you were Latino or black, you could not obtain insurance at any price.

And that's because of the industry's historic and discriminatory practices of redlining and territorial rating. At that time in California, we had an appointed insurance Commissioner. Under state law, the Commissioner had no power to regulate the rates or practices of the insurance companies, nor were the antitrust laws applicable, so state authorities couldn't bar concerted behavior that would otherwise be illegal. The insurance companies were immune from lawsuits. The unrest Civil Rights act did not apply to them. The state's consumer protection laws did not apply to them.

So everything that happened in the marketplace was inexplicable and opaque, not just for the public, but for lawmakers like yourselves. Back then, nobody could figure out why the rates were going up and why nobody could buy insurance. Now. The industry claimed that these increases in nonrenewal and refusals to sell were necessary because there were too many lawsuits, too much risk for them to bear because of the legal system.

But there was no way for anybody to determine if what they were saying was true or not because the laws in California did not authorize any kind of regulation of the industry. And the appointed Commissioner, insurance Commissioner, who was an appointee, had no power. And there was nothing that anybody could do about any of this. And we now know, of course, that that crisis in the 1980s had nothing to do with lawsuits, as the insurance industry claimed it had to do.

Everything to do with the fact that insurance companies had made errors in financial judgment in the early 1980s and had to remedy those errors by increasing rates in the mid 1980s. So, when the Legislature refused to do anything about insurance in California, the voters, as they often do, went to the ballot box. We assembled a huge coalition of consumer, civil rights community government officials. The campaign was grassroots funded. The average donation was $9, a huge volunteer effort to put it on the ballot.

And here's what Proposition 103 called for. A 20% rate rollback, prior approval process that you've all heard about, where the insurance companies are required to open up their books and justify applications for rate increases. And they have to do so in a public way and subject to consumer intervention, so that advocates like consumer watchdog can challenge rate increases when they believe they're unjustified. Any consumer can do so. And then the Proposition 103 also dealt with the other crisis that I mentioned.

At first, it applied the Unrest Civil Rights act, and it barred redlining and really greatly diminished the practice of territorial raiding. And these were practices that had been the subject of many lawsuits. I want to, there's something on the screen here. This is a clip from the 19, I believe, 1990s about how MetLife's use of race was uncovered going back decades. And then this is a law review article from the 1970s.

The title summarizes how pernicious the discriminatory practices were, and again, there was no control over them. So I'd like to pivot now very quickly to what's happening in California. I want to address two myths that the insurance industry has propagated before the Legislature and in the public. First myth, the insurance companies claim they are failing and that they are in financial distress. They are not. They're prospering.

I've heard it said, in fact, it was said before the last Committee hearing that 2017 to 2018 wildfire losses were so high that they wiped out 26 years of underwriting profit. That's a very misleading statement. First of all, I want to point out the fact that the utility companies made available 12.1 billion in subrogation payments as a result of their negligence in some of those wildfires. That's rarely discussed or acknowledged by the industry.

But when you look at the long term, 1991 through 2021, insurance companies earned $64.9 billion more in California premiums than they reported in claims during that period. And then if you include subrogation in that they pulled in 77 billion more than they paid out, they're not in financial trouble. If you look at the profitability figures, a different metric of how you look at the financial condition of the industry.

California insurance homeowner companies were more profitable than the national average over the last 20 years, 8.8% return on net worth, compared to 6.2% nationally. And by the way, all of this is contained in this fact sheet that we've put together for the Committee.

There's a lot of dispute about these numbers, and one of the things that the voters did when they made the Commissioner an elected office and made sure that there was transparency is they gave the Commissioner the power to get this kind of information, factual information. Did they really lose money during the wildfires, and to what extent did they, and what does that look like over the big picture of the insurance industry having the marketplace be very lucrative for homeowners over the last decades?

And really, the insurance Commissioner should be doing a data call using his authority to get the right accurate numbers from the industry and present them to this Committee. I think we'll probably write a letter to the Commissioner to urge him to do that. Okay. Second big argument that the industry has made. Insurance companies aren't getting the rate increases they need. That is also false. We went back and looked for this hearing. We did an examination of rate applications between 2021 and 2023 for homeowners.

These public records are available on the Commissioner's website. The home insurance companies got 94% of the insurance rate increase that they requested during that period. The average increase was 10.8%, and that request was 10.8, and the average approved was 10.23%. So we're in a situation where the industry is saying that telling lawmakers that they can't get rates approved quickly enough. That's really not true. And, in fact, they're getting everything they need. And by the way, that's what Prop 103 requires.

Nobody benefited when the insurance industries under the deregulated, pre Prop 103 environment went bankrupt, as they used to. That can't happen. Under Prop 103, they get the increases they need, but not excessive increases. And that's why Prop 103, in the area of motor auto insurance, saved consumers 154 billion since its passage. Consumer watch. Sorry. Okay, got to hurry up. Consumer Watchdog's own interventions save people 3.47 billion in all forms of insurance between 2002 and 2023.

So I want to pivot now again to two arguments that the industry says things that the industry is demanding and explain why they shouldn't be allowed. The Commissioner has properly blocked them from getting what they want. The first thing is the use of black box algorithms. Those are, number one, never been shown to be accurate.

In fact, states where they're allowed to use models failed to predict weather events and the models themselves were so far off that the companies actually did not charge enough to cover some of their losses. Number two, algorithms are notoriously biased with respect to race, class, and gender. And if they're allowed to be undertaken here, models would reintroduce some of the kind of discrimination that the voters barred by Prop 103.

And most importantly, perhaps, is that the insurance companies and the vendors of these algorithms and models want to insist that they have to be used. And then they insist that they can't be subject to Proposition 103 and three's transparency requirements, which means nobody will ever be able to examine whether they're legitimate or not. Same kinds of arguments about reinsurance.

The reason why the regulations have for decades promulgated by the Commissioner, barred the use of reinsurance is because that is unregulated, and that if it were allowed to be passed through to consumers, rates in California would go up 40% to 50% immediately, and then be subject to the vicissitudes of what happens all over the globe in the reinsurance market. So, at the end of our testimony, I want to point out that there are quite a number of recommendations that what should be done?

What can be done? In addition to enforcing Proposition 103's reforms, I want to talk about just a few. The Commissioner has issued regulations that require insurance companies to give homeowners discounts when they take actions to mitigate the risk of wildfire losses at their homes. The Legislature needs to approve more money to Fund these kinds of homeowner improvements, even though they're going to get discounts.

And we're going to propose that the Legislature consider using funds, an estimated 3 billion in funds from the cap and trade program next year. The Commissioner should require the insurance industry to both disclose all its investments in fossil fuel plants and stop underwriting them so that basically the insurance centers are selling insurance to the fossil fuel plants that are causing the climate crisis that is causing the losses in California. I'll close with one more proposal. It's a very serious issue.

We think the Attorney General should investigate concerted efforts by the insurance industry in the marketplace today in California, because unlike prior to Prop 103, Prop 103 applied the antitrust laws. You can't conspire to boycott this marketplace. You cannot confer with each other as insurance companies to engage in the kind of campaign we're seeing today where insurance companies are pulling out of the markets. I want to ask the chair's permission to allow me to supplement the record after this Committee hearing.

We may have more to say, and I want to thank you all again for your attention today. And I'm happy I'll be here through the whole hearing. I'm happy to answer questions now or later.

Thank you very much. No, thank you. That was very informative. So I'm going to defer to our Members. Any questions first from our Members, any questions, comments, concerns? I will start with Senator Alvarado Gilt. Thank you.

Hi, Mr. Rosenfield. Nice to meet you.

Thank you.

Senator, I will say that I have not been following Proposition 103 for the entirety of my life. One, I wasn't a voter in 1988.

Understood we had other priorities.

Yes. And in the time allotted to you to be able to present, I know that you touched on a few things of Proposition 103. One of the areas that you didn't touch on that I would like a little bit more education on is the notion of this intervention process, or intervener process that was also part of Proposition 103. Can you say a little bit about what that is and how it's impacted?

Yes. Thank you for asking me that question because I know there's a lot of misunderstanding about that. So to be blunt, when the voters set up this entire regulatory process and created the elected post of Commissioner, they did not entirely trust those government institutions.

So they gave themselves the authority that the utility consumers also have here in California to oversee what's happening in the industry, to participate in the process of reviewing rate applications, and to request hearings if they believe that the rate applications that the companies are submitting under the prior approval process are excessive. And this is the part that I think the insurance industry just hates the most.

The voters mandated that if a consumer or consumer group like consumer watchdog makes a substantial contribution to the outcome of any proceeding under Prop 103, the insurance companies in most instances have to pay for the fees and expenses of the consumer group to bring the marshal, the kind of expert testimony, actuarial support and legal talent that the insurance companies bring to the table. And of course, they build the policyholders for that, too.

So to give you one metric about consumer watchdog, I mentioned that we saved quite a bit, 3.4 billion over a long period of time in our interventions. Those costs are ultimately able to be passed through to the consumers by the insurance companies that pay our fees and expenses. For every $100 we have saved consumers in California, $0.33 is the cost of our intervention work in saving that $3.4 billion. So most people think that's a pretty good deal. We never hear any complaints from the consumers.

I don't want my $0.33 going to.

You guys, we need to keep it brief.

I'm sorry. Go ahead.

We need to keep moving. Does that answer that question?

Yes, I have follow up. So are these interveners, are they elected? Are they appointed? How are they selected?

The statute says any person who represents the interest of consumers, and that is determined initially by a finding by the Insurance Commissioner, you could walk in, but you have to show that first that you represent the interests of consumers. But it's anybody. We're the lead group, I would say, in interventions under Proposition 103, but the Consumer Federation of California, Consumer Federation of America, and others do so as well.

So if they're not elected and they're not appointed, they're self selected. Who then monitors the interveners, ensures that they're good actors and good players.

At the end of each intervention, at the end of each proceeding in which an intervener participates, the intervener has to file a request with the agency to obtain an order for compensation for their expenses. And that is a process that presently is overseen by an administrative law judge. Even though some of these proceedings meant that the vast majority of proceedings don't ever go to a full hearing, the Department has correctly assigned an administrative law judge to review those requests for compensation, and they pass over them.

And if the advocacy group, as we often do, requests funding, and we have show we made a substantial contribution, the ALJ issues an order on behalf of the Commissioner to make sure the company pays our fees.

So you're not hired by a consumer, you're not requested to intervene, you self intervene for profit?

Well, we're a nonprofit organization. We intervene to protect the public. And the way the voters wrote, the way the statute was enacted.

The voters didn't write the statute.

Yes, you're right.

You told me you did.

Yeah, you're right. That's why I corrected myself.

Sorry, Senator. I listened to the beginning as well. Yeah, so the voters didn't write the statute. I'm trying to understand this intervener process, because I've never heard of this before in any other industry, that people can self select to be watchdogs for a profit. And the number that you gave was, I mean, that's a lot of money. So I wonder, what is the benefit to those who self select to be interveners, and what is that price tag? How much do you earn for that?

Well, I'm really glad to be able to fill you in on this. In fact, there are intervener programs, mostly in the utilities area, all over the country. And as I say, we're a nonprofit organization, although that's not necessarily the criterion, because the voter specified literally says any person may initiate or intervene.

So in terms of self selection, I wish there were more nonprofits doing it here in California because there's plenty of work to be done looking at this material and, well, maybe, I'm not sure really what your question.

I was just going to say we need to time check.

Thank you. I seem to believe I'm a pretty intelligent person, and when voters see something that benefits them, like, yes, we want to make sure that we don't have these crises, that we can have affordable insurance. I think there are some pluses there. What I'm not a supporter of is policy that gets kind of snuck in there to allow for self benefiting processes.

And so as a taxpayer and as a protector of taxpayer dollars, is there an option to do a public records request or to assess how much money is being filtered through these intervener processes?

So your quarrel is with the voters? I understand that. I would take umbrage at the suggestion that we snuck that in, but I understand where it comes from. All of it is public record and it should be on the department's website because that's what Prop 103 is all about, is transparency. And if you have any particular information that you want, I'd be happy to supply it. But the Commissioner, I believe on the website has a list of all the payments.

Okay. So as a taxpayer, we can file a public records request to see how much money is being earned by interveners.

What I'm saying, Senator, is I don't even think you have to file a request. You could, but I think it's all up in the website.

Okay.

But I know the Department.

Give me an idea of intervene on one situation. Is it a percentage? Is it an hourly fee?

What's that? The way it works is we're allowed to charge the hourly rate that an insurance company lawyer of equal skill and experience would charge. So we Bill an hourly rate. We Bill for our expenses, which are usually kind of minimal, it might be travel. And then we have an actuary who we not employ, but who at the moment is available to serve to work on these cases.

And he bills his time at an hourly rate that he is allowed to charge, which is also reviewed by the agency. And all of that is put together in a compensation request.

You said allowed by the agency. Which agency is that?

The Department.

Which Department?

Sorry, the Department of Insurance.

So they set the rates for.

No, the rates are basically set by the market and based on what the insurance companies charge for similar services.

And are you saying these interveners they're educated, qualified. How?

Well, some of us are lawyers, and then some of us are.

Ah. Gotcha.

OK. All right. Thank you.

Thank you so much. Mr. Dodd?

Yeah. Mr. Rosefield.

It. I appreciate that. When I saw the articles up there in the 1980s, I was busy running a business back in those days and probably not paying that much attention, although I might have been happy about the lower insurance rates for business. That said, so I want to appreciate what you've done for consumers. I guess at the same time, I look at what this has done over 35 years, because now what we can do.

First of all, 35 years ago, this was passed by 51% of the voters. And while you may not have snuck it into the Proposition, clearly you had a motive in mind, and so did Mr. Nader, to fuel a process in the future to move on this. I'm not saying there's anything right or wrong with that, but I just wanted to kind of add to what the Senator was talking about here.

But you said about what my concern is right now is with all the Fires and everything you have, particularly in my District, I've got people right now that are going naked with no Insurance whatsoever, and there's Businesses and homeowners, and I'll tell you, people are frightened. And so, when I look at this, what you said is insurance companies have gone, on the average 10.8%. They've been awarded 10.2% that has been approved by the Insurance Commissioner.

And that also, you said that rates, unchecked, would go up 40% to 50% for reinsurance.

On the reinsurance.

Zero, just on the reinsurance, yes, on the reinsurance itself. I guess what I'd like to say is what I'm seeing in the marketplace is the insurance rates on not admitted carriers, because they're the only ones that are coming in to even look at some of these risks. And it's not 10.8 or 10.2% that they're more than the policy. It's sometimes one hundred, two hundred, three hundred percent, or maybe even more. And this is a problem that I see. Look it.

At the same time, I see the good things with this and our Auto Rates. Like I'm kind of mix and Match here, Madam Chair, we're the lowest in the country, but when we look at things from where we're looking at it, we got to look at this stuff as a matter of balance. What other commodity in the State of California Are we the lowest rate on in the United States out of all 50 states?

And we've got to look at this thing and say, where have we gone wrong? What I don't want to do is throw the baby out with the bathwater. Terrible analogy. But I'm going to use it for this because I think there are some good things. So what I'd like to see your organization do is to show some leadership and maybe work with the Insurance Commissioner, work with insurance companies to look at risk based models and reinsurance, if only for a period of time.

Maybe we've got a process of five years or so on a specific to properties and risk to wildfire or other climate dangers, because you doing nothing and having the Prop 103 guidelines in place today, I do believe, is an impediment, because a lot of insurance companies don't want to do the dance with your organization to get a 20 or 30 or 40% increase that they may very well be due. You're talking about the profitability of insurance companies over the last 35 years.

That doesn't really tell the story, the micro story of what's really happened in the last five years. I want to make one other point clear. I've done the fight with the insurance companies in this very room on insurance bills, for fire insurance, for consumers that I want to protect from things that insurance companies are doing. So you're not looking at somebody here that's all in with insurance companies. I'm all in with consumers.

And I know you say you are, but at the same time, I think that Prop 103, what it's doing is it's creating problems within the systems that now, over time, we can see is hurting. It's hurting my constituents. So I hope that you'll consider something that we can work together to find a pathway home for consumers.

Thank you, Mr. Dodd. Any other Members, Madam Chair? zero, sure.

Would you mind?

Of course. I'm sorry. I thought it was a closing statement. You may respond.

Thank you, Madam Chair. Senator, I understand where you're coming from. Our mission is to protect consumers against practices that are not in their interests. I understand that the industry has persuaded people here in Sacramento that Proposition 103 is the problem.

I would ask that you reconsider by reviewing our testimony, which is full of facts, full of numbers, most of it from the insurance industry's own data, that show that they're not losing money, that reinsurance would cost people, would lead to vast increases, and models are not reliable. I would just ask you to review that and see if you can't. Then I think hopefully, you will.

Be. Persuaded that it would be a mistake to embark on what the industry is asking you to do, and what we see is a repeat of what happened in the last crisis that I tried to describe.

Thank you.

Sure.

Thank you, Senator.

Yeah, I will do the deep dive. I don't think I've been persuaded by insurance companies. I've been persuaded by my constituents who are outraged that the insurance rates are this high that they can't charge. And the other thing is, it's very hard to have these discussions when we're talking about insurance increases of 10%. Could be 40%, because they're all in the abstract. We don't know what the investments are for these companies, what their rate of returns are. Maybe you do.

But at the same time, if we're looking at this in the last five years or the last 10 years, I think to go any deeper than that just doesn't make a lot of sense to me. Just knowing that the insurance, if the maximum increase that was given is 10.2% on properties, that cannot be enough in any way, shape or form incentivize the insurance industry to want to write business in the State of California.

And until we solve that problem, consumers that going to, are going to continue to be outraged. Sorry. I'll be.

Thank you. Senator Dodd, any other Members? Go ahead, sir.

Yeah, very brief. I realize that's usually followed by an. Endless.

But I won't do that. The challenge we have is that Proposition 103 was created in a very, very different time with a set of challenges at that time that are fundamentally different than what we're faced with and dealing with now. And now we have an entirely different set of challenges in the insurance market. And it could be that Prop 103 is well tailored to what existed in the mid 80 s and early 90s, but perhaps not quite so well suited to today.

You calling on the car analogy, it may now be an obsolete jalopy.

Mr. Jones, any comments?

Yeah, I just wanted to align my comments with Senator Dodd and just also underscore that I'm hearing from my constituents as well. So I'm certainly capable, as all of my colleagues on this dais are making up their own mind on how these things are impacting our constituents. And just want to tell Mr. Dodd thank you for those comments.

Thank you. Seeing no more comments on this issue, I want to thank you for sitting here with us and sharing some information and the reality know, and I want to just take the statement from, I mean, we're really here because we're hearing our, know. The facts that we see here in Sacramento don't necessarily translate back home when we're saying things are fine and they're doing great. That may be true, but then we have consumers who are not being insured.

They don't have enough insurance, so they're suffering the consequences of us, I would say all of us here not figuring out what a good place to be in the insurance market is right. To just, I think it was Senator Alvarado-Gil who asked how much money conveners make.

I'm just going to quote, I just found an article from the Sacramento Bee. It says that more than three quarters of the 17.6 billion, I'm sorry, million in intervener fees awarded since 2003 have gone to the consumer watchdogs or conveners. I don't know if, again, this is Sacramento B, so I just happen to have this handy, but I just want to reiterate what Senator Dodd is just stated. We really just want to find solutions. And I know you're on the hot seat.

We're going to have the insurance folks on the hot seat a little later. But another comment that kind of caught my attention is you stated as a fact that the rate increases happen very quickly. But I do remember from our last oversight hearing we had the insurance Commissioner staff here, and when I asked him how long it takes, and he stated publicly that sometimes cases for conveners could take up to two to three years, sorry for rate increases. So it's not as fast as.

And so I just wanted to share that. That's what I remember from the last statement, and we'll clarify when he gets to have his turn. But I really appreciate it. Like I said, I know it feels like you're in the hot seat right now. We'll have a chance to go deep into the others presentations, and I just want to say that we'll continue to engage in a conversation. This is about coming together at the table. And so I just want to say thank you.

I know this is not easy to be here and answer all these questions, but we want to make sure that we continue to move in a way that's respectful of all perspectives. I'll let you finish it. I know that you're trying to say something.

No, just real quickly.

30 seconds.

Very quickly. First of all, thank you. It's not a hot seat as far as I'm concerned. I've been doing this for the last 35 years. I want to correct one thing, though, about the impression about the intervener process. I heard the hearing testimony last time, so with the benefit of the fact that we are daily involved in that. The last hearing on a Proposition rate application, 103 rate application, was in 2015. There's been no formal hearing since.

The vast majority of these things are wrapped up in a few months after the Department initiates the inquiry and sometimes in certain situations, I've been involved in them, they can go to 18 months. For example, one time when State Farm was really resisting, complying with a portion of the law took 18 months to resolve it. Most of them are done very quickly. Delays are often on the insurance industry's part when they apply.

So with that note, and I'm happy to provide any more material that the Committee would like, more data, anything you'd like.

Thank you. But I do have a question, and I know that it's going to challenge you just a little bit, given that it was 1988, just as the author, is there anything that you want to share, anything that you would have done differently in 1988, given the information we have now? Is there anything that you would say maybe we should have done this? Anything differently?

Fundamentally, the Proposition, as I explained at the beginning, it's set up to be a protector of consumers in any scenario, not just what was happening in the markets in the 1980s. I do wish I had thought more carefully or understood better how the insurance industry would kind of seize on certain propositions and words in the initiative to come up with an alternative meaning for them. But other than that, I feel pretty comfortable about what the voters did.

Thank you for your time. We really appreciate. So with that one more comment, you have really briefly, really brief.

I just want to note, because you mentioned the Sacramento B article, and it did state that California is the only state that allows outside agencies to intervene in auto and home insurance rates. And so, to Senator Dodd's point, why would the insurance industry want to do business in California if we are the only state? And I don't need an answer. This is my brief. End of question.

Why would insurance industry want to do business here in California if we are the only state that makes it this much difficult for them to do their business? So I'll end with that unless you want to continue. Chair. Thank you.

Okay. Thank you very much. Now we will move on to our next presenter and thank you for your patience. We have Dr. Michael Wara, interim Policy Director, Sustainability Accelerator, Stanford School of Sustainability Director, Climate and Energy Policy Program, Senior Research scholar, Woods Institute for the Environment. Dr. Warra, you have quite a title there, and I know that you've asked to testify not only here in our humble dome, but you've also been in Washington, DC.

So we thank you for your time, and when you're ready, you may proceed. Thank you.

Thank you. Thank you, Senator Rubio and Members of the Committee, for inviting me to speak today. I have been working on this issue for about the last six years to seven years and have worked with the Senate on the major pieces of legislation related to, especially utility wildfire risk, and more recently, wildfire risk mitigation in California, and also served on the Wildfire Commission, which was created by SB 901. I'm just going to set a timer so I don't run overtime.

And those experiences are what I bring to this conversation. And I'd say particularly serving on the Wildfire Commission, meeting with Senator Dodd's constituents, people, real people, that were impacted by the fire in paradise. The car fire in Redding was really an affecting experience, personally, for me. And we're recently visiting communities that were affected by the Caldor Fire, which burned in the Highway 50 corridor up to Lake Tahoe a couple of years ago, and visiting with the people of Grizzly Flats, who.

A community that was utterly devastated by that fire. I want you to come away from this presentation with sort of two main ideas, and I think these are fundamental. The first is, because of climate change, we are not going to be able to firefight our way out of this problem, and we are not going to be able to insure our way out of this problem. Both of those things are essential ingredients to success for California, but they cannot be the only ingredients.

And I think the missing ingredient. This is a place where I agree strongly with what was just said by the prior speaker. We really need to be thinking about how to create investment in risk reduction and to make that investment as effective as possible.

And that means, actually, in my view, insurance and the role of insurance companies kind of going back to the future, the early role that insurance played in the United States, and this is really in the aftermath of fires in Baltimore and Chicago and in California after the 1996 earthquake and really fire that devastated my ancestors homes, my people come from the Mission District in San Francisco, was to play an important role in the development of urban building codes so that we would not have house to house conflagration like we experienced in those early fires in primarily wooden cities.

And our cities today are much safer because of it. We may suffer terribly when the next earthquake strikes California, but we are much less likely to suffer the kind of conflagration that occurred in San Francisco in April of 1906. We need to do more of that. In the built environment, in the wildland urban interface, insurance has a very important role to play in facilitating that, and they are facilitating that.

The CDI and IBHS, in particular, the Institute for Building Home Safety, are really striving to do more. And the discounts that were recently introduced by CDI, I think are a reasonable step in that direction. CAL FIRE is also working hard to do this right, to figure out ways to do home hardening, so called. But I guess where I approach this problem today is first to say that insurance as a product is extremely valuable to California. And I think it's valuable in two ways.

Once you talk to victims of a wildfire, victims who are either uninsured or more likely, underinsured, you really understand and can come to grapple with how much insurance is a way to create climate resilience. It is how household wealth is preserved in the face of catastrophe more broadly. Well, insured communities are going to bounce back better from these ever more frequent catastrophes as they occur. And Senator Rubio, your comment about schools really resonated for me.

I spoke with a number of the students from Paradise High School, you know, that were basically dispersed to the wind after that disaster. And the social and emotional disruption that occurs when that happens is, I think, really hard to overstate it. It's worse than COVID by a lot for kids. And then I think, speaking more broadly, the insurance market plays a pivotal role in the residential insurance market in the California economy.

We need available, reasonably priced homeowner's insurance, enabled in order to build new homes, which we all know that we urgently need to do more of in California to make housing more affordable. We need it so that we can transact houses that already have been built, so that people can move and sell a home or buy a home. In California, if you want to have a mortgage, you need to have insurance. And I think that is really what is under threat, all of those things.

If we can't create the flexibility we need in the insurance market due to climate change, why is that flexibility more important today than it has been in the past? The insurance pricing system we have is primarily backward looking by design. It looks at the last 20 years of loss and says that's a good model for pricing this year. And that works really well when the risks are stable, when they are unchanging.

The problem now is that we have a rapidly accelerating climate change problem that's increasing risk for Californians. And climate change is not the only cause of our wildfire problem. If it were, we would have no agency. We couldn't do anything about it, really. We'd sort of be stuck. But there are other things we can do, which I'll talk about briefly. But we need to think about ways to create forward looking pricing and ways that are politically acceptable to all constituents.

And I would be the first to agree that it can't just be that there's a black box model that's proprietary, that no one really understands that's being used as the justification for a rate increase. But we do need to start thinking about what the risk is today rather than some weighted average of what it has been over the last two decades.

Because frankly, when you look back at the fires 2-3-2 decades ago, they're kind of quaint by comparison to what we experience today on a routine basis. Ask any firefighter and they'll tell you. So, I want to spend a little bit of time just explaining the science for why I am concerned about today, but also not so much today, but where we will be in a decade if we do nothing.

Now, I personally see the insurance market as currently stable but fragile, that we have a situation where certain numbers of people in very high risk areas are losing availability to admitted lines coverage, as Senator Dodd mentioned. But the situation is not out of control in the sense that there is the fair plan and insurers, importantly, are still in the state.

You can look to other states in the United States to observe situations where things got really out of control and the big home insurers essentially pull out of the state. And I think Florida is the poster child for this. Florida is in the middle of a second insurance meltdown due to hurricane strikes that have occurred over the last couple of years and the losses related to those. And as conservative a place and free market a place as Florida is, there's no atheists in foxholes.

And when the insurance market collapses, what happens is state intervention. What happens is that risk transfer between private parties turns into risk transfer from private parties to the state and the state balance sheet. And I think we need to be prepared for a situation where we have a major loss event in California because we will have another major loss event. I wish, I believe that we would not, but I think we are not going to move fast enough to avoid that.

And we need to make sure that our insurance system is resilient to that. So why is climate change making this problem worse? There's a common misunderstanding that the impacts of climate change will be due to gradually rising average temperatures. Right? What is the Paris Agreement target? Is it two degrees or one and a half degrees? Nobody kind of knows what that really means to their day to day lives.

But there's sort of this picture that probably everyone has if they close their eyes of that gradually increasing curve. The reality in California and in most places is that that average increasing curve is important. But the more important thing is the changing probability of extreme outcomes. Right. So it's not so much that the temperature is a little bit warmer in the summer is that it's that the odds of a one in 1000 year heat event turn into one in 10 years.

We actually observed this recently in the fires that occurred in Vancouver in 2021 that were devastating. That was a one in 1000 year heat event. We're about to have a very similar event this weekend in Alberta, and fires are burning out of control in Alberta right now. Right. So that's the kind of shift we've seen a one in 1000 year event turn into maybe a one in a five year event. We're not really sure anymore because the statistics are changing quickly. In California.

This is happening because the atmosphere is drier and thirstier during the fire season and because the onset of the rainy season has been delayed. Both of those outcomes. Right. Thirstier atmosphere, drier, slightly warmer, but also drier air that kind of sucks the water out of trees, also out of homes, which are dead fuel. Right. A Wood stick home is dead fuel that can burn if we're not careful about it.

But all of these things dry out faster and they have a longer period of time during the year to dry. We've been lucky the last couple of years because we've had an onset of the rainy season at a more typical California time. Right. We had rain in mid September last year, which put out the Mosquito Fire, which was a very dangerous wildfire burning toward North Lake Tahoe.

But the science tells us that the prior years, when the most devastating fires occurred in late October, early November, even December, is the future. And so we need to be prepared for that future. I think that this future, the shorthand, the way that I explain this is that we've had some really bad fire seasons, particularly the 2020 season. The, the 2018 season was devastating. 2017 was devastating in Napa and Sonoma counties. Those seem like aberrations right now to us, like unbelievable calamities.

Those are going to be average fire seasons by the next decade. That is what the science says. So we need to be ready for that world. We need to get the state ready. We need to get communities ready, and we need to get the insurance market ready. That's a huge challenge. It's a huge challenge for this Committee and for all of you and your other jobs within the California Senate. And it's a huge challenge for the Governor.

But I think being honest about where the state is headed on this issue, that is what we need to be prepared for. So far, I think our insurance market has done okay considering we can worry about the admitted lines coverage and pushing people into the fair plan. But the reality is that claims have been paid and the insurance companies didn't go out of business, right. That's a fundamental deliverable from an insurance market and we have that also.

The fair plan is solvent so far and that's really good and not necessarily guaranteed. At the same time, we have a lot of underinsurance and that's being driven to some degree by competition in the market and that's leading to inequitable outcomes. The steps by CDI and IBHS so far to make progress on that I think are helpful.

But the reality is, and this is where I'm going to part ways with a prior speaker, I think that we need to develop some sort of a method that's publicly acceptable and is transparent to bring science based metrics for estimating risk into this conversation. And I think the best hope for that is actually not to make it an insurance only conversation. I think this needs to be a conversation that CALFIRE is a part of. That the utilities are a part of.

The parties spending the most on wildfire risk in California by far, are the electric utilities. They are spending $10 billion per year on risk mitigation, ignition avoidance. In their terms, that compares to the massive increase in General Fund and GGRF revenues that the Legislature and the Governor have devoted. We're spending 700 ish $1.0 million a year on risk mitigation as a state. So, factor of 10 difference. It's also about 10 times as much as the US Forest Service is spending on fuels management in California.

So we need to coordinate all of this. And we need publicly available, publicly acceptable and vetted models that are useful across all of these parties. Because we cannot insure our way out of this problem. The insurance costs will be too high if we do not also reduce the risk materially and substantially over the next decade. And in any case, we don't want to just pay people money after their communities have been destroyed.

No amount of money is going to make it okay for someone who lived in Paradise prior to the Campfire. No amount of money is going to bring Grizzly Flats back as a community. So, we need to be doing things to reduce risk and finding agreed upon metrics that work across that ecosystem, so that a homeowner knows what to do, so that a community knows what to do. So that calfire has great risk based analytics to say this is what we will Fund.

And this other thing that you'd like to do, actually, it's not as cost effective as you might think because we're not going to have infinite money to do this, especially as we all know, this year is a tough year in the budget, we're not going to be spending lots of extra money on this, even as we can see what is coming down the road.

I would argue that this problem is urgent because it is going to take time, just as the utilities are, in reality going to take a decade, if we're lucky, to get out of the hole they found themselves in after on a very bad morning in October of 2017. Right. It's going to take time for California communities to invest in the kinds of strategies that are really going to protect them and also allow not just for good pricing of insurance, but for availability.

And I think availability is what is fundamentally under threat. We all need to bear in mind that the fair plan. I'm over time, I'm going to wrap up. We all need to bear in mind that the fair plan is a privately financed operation. It only works if the insurance companies are here in California and ready to foot the Bill. And if it gets too expensive, that's under threat. And we've seen them pull out of other states, even other big states like Florida.

So in closing, I just say we cannot insure our way out of this problem. We need to be investing in our communities to make them safe. And that's going to be good for the California economy. It's going to be for communities, and it's also going to be good for the Low and moderate income people in California that we really need to help support and uplift because of the cost of housing. Thank you.

Thank you very much. Just a few seconds over time, but we really want to thank you. I think I want to be a scientist today. Where were you when my fourth grade class was needing a science lesson? But it was very informative. So I'm going to, I'm going to give my colleagues an opportunity to ask questions, so I'll turn it over to Senator Dodd. You may proceed.

Yes, Ms. Warp. This is why I like academics coming in and working with us on helping solve the type of problems that we've been asked to solve. And.

You have been with the Senate helping us on a lot of these issues since 2017. I can't tell you how much I appreciate your time and effort. I wish I had included what you said because I think what you talked about, about fuel management and everything is really important to the whole conversation in terms of perhaps maybe even giving consumer watchdog confidence to do more in this area or also the confidence of insurance companies to do more in this area.

Because the State of California, through state funding, if you look at what we've done in 2017, we had $3 billion that we were funding for suppression of fires, but next to nothing for preventing fires. And so what? Through our funding, we've created and funded local firewise programs throughout the State of California. Home hardening programs and rebates and all those different things.

Reduction of fuels on a big scale as well, new CAL FIRE personnel on the ground, early response teams, a new and improved Air Force that we're doing with helicopters and planes that are increasing the capabilities and the idea that we're ever going to be done with this is kind of flawed until climate change is gone because it's going to be like painting the Golden Gate Bridge. You start at one end, you finish. This might have been your line, too, and I'm stealing it.

You start at one end and finish the other, then you're going back again and starting again. I like your idea, frankly, about working with the interveners, consumer watchdog, getting Cal because you're so right. It's not just an insurance company issue. It's a bigger thing with climate change. And I guess one question I wanted to ask, so I don't sound like I'm pontificating twice in this hearing, but is that possible, do you think?

I love it.

Have you given enough thought on that to figure out what could happen there or how that might be implemented?

Well, Senator Dodd, I would just say, as you know, I'm a big fan of your Bill, SB 436 that would create a kind of quantification mechanism, that sort of modeling mechanism for the state to start thinking about this problem. I think it's going to take some work, but I think it can be done. And there's early experimentation on the part of some of the folks in this room.

I'd point to the work that Nancy Watkins, who's going to be testifying later, has done, trying to understand what the value is of different interventions to keep communities safe. We need to do much more, and there's some private companies that are trying to do this. Also, Google X is working on this for the task force, the wildfire Task Force.

But I guess my view is we need to start creating and I would agree with you that the state has made unprecedented investments over the last several years in trying to reduce the risk of wildfire. I guess the point that I'm pressing is we need to sustain that and we need to create a sustainable model for doing that. That over time, perhaps grows to be as big as the current CAL FIRE wildfire fighting force, which I don't think we're going to ever cut.

I think they are going to grow, too, because we're going to need them and we're going to need them to be there when we are in our most desperate hour of need and hopefully to be there and overhead as quickly as possible. So it's a both and this is a cost of climate change. I just don't think there's any other way around it. We are going to be experiencing these effects almost no matter what happens with greenhouse gas emissions from now until 2050.

That's sort of baked in at this point. The trajectory that we're on after 2050, if the planet does really aggressive things to reduce emissions, then our fates diverge. But the trajectory we've been on for the last two decades, think about the fires in 2003 in San Diego. Right? That was cataclysmic by comparison to, say, the fires that occurred, the historic fires. There are movies you can look at on YouTube that CAL FIRE made of the Malibu fires and the fires in Santa Barbara in the 1970s.

My parents were evacuated for that one. And those look quaint by comparison to what happened in 2003 in San Diego and again in 2009. And that stuff looks quaint by comparison to what happened in Napa and Sonoma in 2017 and Paradise in 2018. And that's the trajectory that we are on until at least 2050.

Remind everyone that we need to keep.

I have to go. I'm going to try to make it back here. I think the takeaway for me for this is, look, we can hammer if we want Prop 103 all day long. It's in place. It's not going away. We can hammer insurance companies all day long. They're not perfect by any stretch of the imagination either, but they're not going away. We need to work with them. Same with CAL FIRE, the insurance Commissioner. Boy, I like your idea.

I think it's high time that we all get together and get to work on trying to find real solutions to these problems going forward. So I want to thank you very much.

Thank you so much.

Thank you. Thank you, Senator, I know that you have to go to another Committee. Any questions? Any concerns? Okay, thank you very much. That was very informative. And I just want to share that it's the science, the data behind what you say that really is compelling to me because when we talk about the insurance and Prop 103, as Senator Dodd stated, it just seems very academic. But I was part of the initial Wildfire Working Group in 2019, I think it was.

I was the co chair of the Wildfire Working Group last year with Senator Mcguire. And the difference here is that we're hearing a Committee hearing all the data in very scientific terms, but we had the opportunity to visit impacted communities. You talk to real people who are struggling tremendously in the aftermath of these wildfires.

I was in the Malibu Fire touring that area, and people think of Malibu as a very wealthy place, but there was a couple of communities that, people that lived in communities in trucks, and then they had, I was baffled by the fact. I was just surprised that there's this whole community that is very humble, nestled in the mountains of Malibu. They lost everything.

And so when we have these personal connections, we have to somewhat pull away from the science and what we're hearing, but really consider what's happening on the ground level. So I have the unfortunate task of actually speaking to people, speaking to children, as I mentioned, firefighters who are still dealing with some of the aftermath of mental health issues, of what they witnessed. So I take all that into consideration.

But we just want to thank you, and I definitely want to keep inviting you to see if we can continue the conversation. It was very valuable. One thing that stood out to me is, as you were talking about insurance sustainability, you talked about how if we don't figure something out soon, at some point it's the risk transfer from private to the state. At some point, it's going to be on the state to have to pay for it.

Right now, we're dealing with a little bit of a deficiency in terms of our budget. And so we need to figure this out soon. So I won't keep you any longer. We thank you, and I'll keep calling you for more information. So thank you very much. So we're going to invite the next panel up to discuss. We have with us. I mentioned earlier that Commissioner Ricardo Lara wrote the nation's first climate insurance law, SB 30, to explore innovative strategies that reduce the risk.

He has appointed a working group, which we're going to hear about in just a few minutes. And so I'm just going to turn it over to you. Our time is getting a little limited. Our presenter is Mike Peterson, Deputy Commissioner for Climate and Sustainability of the California Department of Insurance, and here to discuss that task force with us. You may proceed when you're ready. Thank you.

Thank you, Chair Rubio and good morning, Chair Rubio. Vice Chairman Nguyen, Members of the Committee, thank you for the invitation to testify here today. My name is Mike Peterson and I serve as deputy Commissioner for climate and Sustainability at the California Department of Insurance under the leadership of Insurance Commissioner Ricardo Lara. I was asked by the Committee to speak on how the Department has approached challenges of climate change through new partnerships and innovation. Our number one priority at the Department is consumer protection.

That includes, in the context of climate change and insurance, tackling the core issues of climate change and building more resilience in our communities. The best long term resilience strategy is a dramatic reduction in the emissions that cause climate change. Yet even if we are able to quickly move to a low carbon economy, the past emissions have already locked in rising temperatures and increasing climate impacts for the foreseeable future. And we need to seize every opportunity to adapt to and bounce back from climate intensified events.

The Department and many governments throughout our state and the nation are facing tremendous challenges in the face of climate change, intensifying wildfires, extreme heat events and flooding, and also causing coastal sea level rise. At the same time, protection gaps, which is the gap between the total cost of a disaster and the costs covered by insurance, are growing.

So to strengthen resilience, we need to reduce risks for entire communities and close protection gaps today and moving forward, the solutions to accelerating climate risks have to be comprehensive and measurable, which require collaborations with stakeholders and collective action across jurisdictions. So today I want to highlight four key areas where Commissioner Lara and the California Department of Insurance have created new collaborations that are providing a vision and an action plan on solutions that can help empower safer, resilient communities.

First, as you mentioned, is the convening of the Commissioner's Climate Insurance Working Group and producing the first of its kind California Climate Insurance Report. Secondly, the launching of the Interagency Partnership between the Department of Insurance, Caloes, CAL FIRE, the California Public Utilities Commission and the Governor's Office of Planning and Research to create the safer from Wildfires Framework Third, creating the first ever sustainable insurance roadmap in partnership with the United Nations and fourth, leading the US state regulators to build national climate policy for the insurance sector.

Commissioner Laura's Climate Insurance Working Group, convened in 2019, is chaired by former Special Assistant to President Obama on Resilience policy, Alice Hill and consists of 18 Members, including public policy leaders, insurance sector experts, academic researchers, and environmental groups, including the Environmental Defense Fund, the Greenlining Institute, the Natural Resource Defense Council, the Audubon Society, and the Nature Conservancy.

In the summer of 2021, the working group published the Climate Insurance Report Entitled Protecting Communities, Preserving Nature, and Building Resiliency, how a first of its kind climate insurance will combat the costs of wildfires, extreme heat, and floods. The report sets out 40 recommendations guiding strategies to strengthen community protection, invest and ensure nature based solutions, close protection gaps, and to pair together risk reduction with insurance policies.

Insurance is a cornerstone of community resilience, and the Working group recognized that accelerating climate risks and wide protection gaps pose a concerning scenario when severe climate events occur, who is left behind? Without greater investment in risk reduction and improved tools for financial resilience, communities are likely to enter a damaging feedback loop, one where escalating risks leads to increased losses. Then those losses cause financial backsliding, fewer insurance options, and diminished capacity for future resilience. Such scenario would further exacerbate inequities in our society.

So at the core of the climate insurance Report is the recognition that California must both reduce climate risk impacts and close protection gaps in order to protect our most vulnerable populations. The report's recommendations align with four essential elements of risk management, namely, strengthen how we assess risk improve our risk communication, expand risk reduction and close protection gaps by expanding insurance solutions. Also known as risk transfer solutions, risk assessment is a critical foundation. An understanding of climate threats, vulnerabilities, and impacts requires robust risk assessments.

This understanding can then guide decisions on how communities prioritize mitigation, how and where we build and rebuild resilient structures and infrastructure, and how to expand insurance coverage options. Once a strong risk assessment is in place, that information must be widely communicated to promote not only risk awareness but also the burdens of recovery so that individuals, local municipalities, and stakeholders can make more resilient decisions. Pre-disaster risk reduction is both essential and often very cost effective.

According to the National Institute for Building Sciences, every dollar of pre disaster mitigation saves five to $7 in avoided future insurance losses, helping make insurance more available and affordable. The report recommendations emphasize the role and the value of nature-based solutions in risk mitigation, and that the clearest path to reducing future losses is building better. After considering the important upstream factors of risk assessment, risk communication, and risk reduction, the working group focused on insurance solutions.

And that's because reliable insurance is central to disaster financial resilience, funding, repairs, and rebuilding. So among the many common threads of the report, I will highlight three significant themes reflected in the report's recommendations and solutions today. First is that solutions must be comprehensive and cross cutting. Among the recommendations, 18 out of the 40 are cross cutting, which means simultaneously focusing on multiple perils, be that flood, wildfire, extreme heat and including land use, building practices and nature-based risk reduction strategies in the solutions.

Secondly, community mitigation is essential and the path to achieve stronger community risk mitigation covers several of the recommendations in the report, including making greater investments in home hardening, expanding nature-based solutions and community insurance through pilot projects, and improving risk communication to warn vulnerable communities in advance of disasters. And thirdly, nature is an ally. Wetlands reduce flood losses, forest management can reduce wildfire risk, and urban forests reduce extreme heat impacts. The working group highlighted examples where nature could reduce risks and expand insurance options.

This collaborative group and their report have already produced innovative deliverables. I've selected three to highlight here today. In 2022, the state Legislature passed and Governor Gavin Newsom signed AB 2238 sponsored by Commissioner Lara, that directs the development of a statewide extreme heat ranking system for California. This is the first such ranking system in the world, and it will help local governments prepare, intervene and mitigate the risks of extreme heat.

If communities can reduce or even avoid damage from future disaster events, then recovery costs become more manageable, making lives many lives can be saved and future insurance costs lowered.

Secondly, also in 2022, the state Legislature passed and Governor Newsom signed Senate Bill 852, authored by Senator Dodd and sponsored by Commissioner Lara and Civic well, which authorized the creation of new climate resilience districts, providing local governments with a tool to become more resilient to cross jurisdictional climate risks and achieved sustained funding for resilience and risk reduction projects. And third, the Department has strengthened home hardening incentives through interagency partnerships and new statewide regulations, which I will describe next.

Commissioner Laura's partnership with Governor Newsom's Administration on the Safer from wildfires framework is the second point I'll highlight. The most direct path for insurance to become more available and affordable in the future is to bring down the risks to our homes and communities. That is why Commissioner Laura has relentlessly focused on prioritizing wildfire safety. Insurance has historically been about pricing risk and being a source of resilience funding that occurs after a devastating wildfire or flood.

What we are doing at the Department is taking actions that change the way that insurance works so that insurance not only provides protection after a disaster, but also incentivizes risk reduction before a disaster occurs, thus saving lives, reducing losses, and bringing down costs to get to the safer from wildfires framework in 2021, Commissioner Lara convened the state's major wildfire preparedness agencies, which include Calais, the Governor's Office of Planning and Research, the California Public Utilities Commission, and the California Department of Forestry and Fire Protection, to establish a list of priority home and community hardening actions for insurance.

We met with research experts from the Institute of Business and Home Safety, the University of California, and with consumer groups, insurance trade associations, and fire chiefs, among others, and came up with a consensus of core home hardening actions and community mitigation designations, actions that are clear and consistent, effective, and achievable. The Saber from wildfires Framework was released in February of 2022.

The list of actions start with structure hardening and then work outward from the structure to the surrounding property and then also work that can be done together as entire communities. What Commissioner Lara did to make safer from wildfires most impactful was to write the first ever regulations by any U. S. State to require insurance companies to provide incentives to policyholders who take these home and community hardening actions. The regulations were finalized last October, and insurance companies have to make new filings to comply with the rules.

Last month, every insurance company writing residential or commercial coverage that prices insurance based on wildfire risk is required to provide these incentives, providing a statewide cross jurisdictional incentive for adapting to climate change. Insurance pricing is one incentive, but there will also be state grants and local grants that can help neighborhoods and homeowners achieve actions across the safer from wildfires framework. My third point to highlight today is how we achieve a comprehensive approach to insurance solutions.

Last November, Commissioner Laura entered into a historic Sustainable insurance roadmap with the United Nations Principles for Sustainable Insurance Initiative. This roadmap outlines key actions that regulators and insurance companies need to take to protect consumers and to create more sustainable insurance markets. We now have a strategic vision and an action plan with four goals to strengthen consumer protections moving forward.

You have five minutes. Reminder.

Thank you. I'll wrap it up. First, reduce greenhouse gas emissions in every sector of our economy. Second, close protection gaps for vulnerable communities third, keep insurance available and affordable and fourth, create community protection from climate threats. To achieve this goal, the roadmap details four strategies.

We will strengthen transparency in and financial oversight of the insurance industry support the transition to sustainable investment strategies catalyze sustainable insurance products, including climate insurance policies that protect entire communities and policies that drive down emissions and then those that incentivize risk mitigation and fourth, to create more resilient communities by implementing the climate Insurance report.

Lastly, I will highlight national leadership through the National Association of Insurance Commissioners, Commissioner Lara serves as the co chair of the Climate and Resiliency Task Force, which has bipartisan leadership and leads national efforts to address climate risks in the insurance sector, including climate risk Disclosure, where we have been able to go from getting zero TCFD climate disclosures in 2018 to nearly 80% of the US market in 2022.

For the acronym of TCFD, this is the international standard for Climate Risk Disclosure that's required in France, New Zealand, Switzerland, among others. So, in conclusion, collaboration and innovation have led to real deliverables that protect the California public, provide tools to reduce future insurance losses, and support insurance availability. We have made critical progress, but the work is not complete and the risks continue to present challenges.

Looking forward, the Commissioner's Climate Insurance Working Group continues to provide expertise and refinements to assist our implementation of the Climate Insurance report recommendations. The Commissioner's safer from wildfires regulations are being implemented and we are working with local fire professionals like the CAL FIRE chiefs, who are testifying later today to align wildfire prevention priorities and actions.

We continue to take actions laid out in the Sustainable Insurance roadmap with the United nations and to build broader multi state coalitions with our insurance regulator colleagues to better address the shared challenges that cross state borders. Our new partnerships that produce the Climate Insurance report and the Sustainable Insurance Roadmap have established a backbone of actions that is focused and comprehensive, not erratic or partial for consumers.

If we reduce risks associated with climate change, we will be providing more flexibility through greater insurance options and the ability to mitigate risk to their homes, businesses and lives. With the leadership of the California Insurance regulator, we are shifting the thinking on how insurance can promote risk mitigation, how we build, how we incorporate nature and the new data we can collect to support sustainability. These new partnerships are making our insurance market more resilient amidst emerging challenges.

Thank you for the opportunity to be here and I'm pleased to take your questions.

Thank you very much for that information. First, we'll turn it over to my colleague if you have any questions. Well, thank you for this information and I may invite you at a later time. I want to go deeper into the four key elements that you've identified in the working group, which is risk assessment, risk communication, risk reduction and risk transfer. Clearly, we're not going to have time today, but I want to just shift a little. So this is very informative.

And again, we would have to dive deeper and we don't have the time right now, but I do want to just go back since earlier we were discussing with Harvey about just the time it takes to approve the rates, and I want to give you an opportunity to respond because I know that last time your colleague stated how long it could take, and I want to make sure that we have accurate information to also make sure that Harvey gets his sight as it pertains to how fast rate filings are.

Can you share a little bit of that information?

Absolutely. So, thanks again for the question. According to our rate regulation Branch Staff Department, rate filing approval times for non-intervened filings averaged just over six months. If you look for between 2015 and 2022, that grew slightly during the pandemic due to several factors for intervene filings. Between 2017 and 2020, the average was just under a year.

I do want to put the caveat that these are averages, and so when you have only a small number of filings in a certain year, one can pull the average more than if you had lots of filings in a given year.

Thank you. That was important to know because I know that earlier I said, based on what I heard last time, that it could take up to two years. So, I imagine those are just rare cases when they go 2 - 3 years. But the average, as you stated with, it's under six months for just non interveners and under a year. So, it's still under a year most rate filings, correct?

Yeah, that's accurate for the time periods I stated. So 2017 to 2000 and 23-37 days is the average for an intervened filing. And it's about six months for the non intervened filings.

Thank you. Another issue I want to discuss. I know that the Insurance Commissioner has been going around the state just having a lot of town halls, listening to consumers because I'm really interested in what happens on the ground level. Again, I want to make sure that we don't get lost in the weeds here about the science and what we're discussing here. Can you share a little bit of what you're experiencing or he's rather experiencing as he goes out into these communities?

What are the top three issues that he finds out in the communities? I know he visited several impacted communities. I just want to know what are people dealing with right now.

Absolutely. So I'd say the number one issue that we're looking at as we go out to communities is how to best communicate these risk reduction elements to take in advance of a fire. And in that regard, the new wildfire regulations that were finalized in October provides that safer from wildfires framework that's sort of a clear communication tool to help inform communities on what of all the things that you can do. What are the actions that are in that framework?

That not only are the consensus among the state agencies, but that are also written in the regulations for insurance, and so you can expect an incentive in your insurance for taking those actions. As you can imagine, the wildfire issue is overwhelming for many people in terms of what to do. And so this clarifies and focuses where we can put our time into risk reduction and how best to get there so that effort continues.

The other thing is that we do still continue to collect data and analyze information on non renewals in the state. That is still an issue that is very real in many communities, especially in the wild and urban interface. And it's something that we continue to monitor closely and talk to communities about when Commissioner Lara is out at town halls and otHer, we really, the focus point has been wildfire safety as the clearest path to better insurance availability and affordability.

Thank you. I know that Commissioner Ricardo Laura. I share similar areas, I would say, in terms of demographics. And I know that, for example, a few years back, I brought $12 million up to, we had the Bobcat fire, and there's funding for grants and incentives. And sometimes our Spanish speaking community doesn't necessarily know how to go about doing this. Can you share what you are doing in terms of just being mindful of the different languages and getting information out to folks?

How do you tackle those that don't speak English to share a little bit of that, please. Thank you.

Thank you. No, it's a critical issue. We have a community relations and outreach branch that is relatively new for the Department and is energetic and does hundreds of events a year. And they really work hard to identify what communities they're able to reach, what languages are needed, what information is most relevant. And so that has been an ongoing, and I'd say, expanding effort for the state.

And on this wildfire issue, it's really important because we have these risk reduction actions that we want people to know about and be able to take and be able to find resources. And so our community relations and outreach Branch does a really incredible and growing job at trying to do that most effectively throughout the state.

Okay. All right. Thank you so much. Once again, I hope to invite you back. There's a lot of information to go deeper on, and I appreciate the insurance Commissioner having representation here. Thank you so much.

Thank you very much.

So now, again, we are running a little bit of time, so I'm going to try and expedite this. We are fourth presenters. We have Nancy Watkins. Thank you for your patience sitting here through this. She is the principal and consulting actuary at Milliment Climates Resilience Initiative. So I know Mr. Wire mentioned some of the good work you're doing. So when you're ready, you may begin. We have 15 minutes, but if we can streamline that, I would greatly appreciate it. Thank you.

Thank you Senator Rubio and Committee Members for having me today. As you mentioned, I'm an actuary and a principal with Milliman. I manage our practice in San Francisco. We consult for many of the largest California insurers and industry trade groups. We also consult for the Town of Paradise, the Western Fire Chiefs Association, the National Resources Defense Council, National Association of Realtors, Insurance Departments in Hawaii, Alabama and Connecticut, and FEMA for the National Flood Insurance Program.

So we're kind of in the middle of catastrophic risk and insurance markets. As a volunteer, I help to close the flood protection gap in the country. I assist the NAIC on catastrophic issues, and I serve on the CAL FIRE Risk Modeling Advisory Work Group. I also live in Arenda, which is a very high fire risk zone, and I was dropped by our carrier when they left the California homeowners insurance market.

So I'm speaking today not only as a risk and insurance expert, but also as someone who wants a sustainable future for our family and our fellow Californians. Today I'm going to share some thoughts about how the rising climate risk is interacting with other risks to threaten the sustainability of the California market. I'm going to focus mostly on wildfire, although there's a couple of times I'm going to talk about flood as well. And I will end with good news. Promise.

So, starting what makes a sustainable insurance market? It rests on three pillars. Availability of private insurance is predicated on being able to manage, measure and charge enough to take on the risk. Affordability signifies that homeowners are willing and able to pay the premiums charged in order to transfer the risk. And reliability signifies that the insurers in the market are confident and able to remain solvent and pay claims associated with the risk that they've taken on, given the environment they're operating in.

For California property insurers, climate change is interacting in new ways and causing cracks in all three of those pillars, which could present complex and difficult challenges. First, our insurance is increasingly unavailable, which we've all been talking about today. Why is that? A couple of reasons. First, wildfire is especially difficult to model for many reasons, including it's often human caused. It can spread far away from where it originates.

How fast it spreads depends in part on conditions that change, like vegetation, drought, wind, and the interaction of the risk framework between what we do and what our neighbors in our community do and what our fire protection capabilities have. As we've all talked about today, the wildfire risk in California is clearly increasing due to climate change, and it's been exacerbated by years of fire suppression, leading to buildup of vegetation, as well as expanded real estate development in the wild and urban interface.

Additionally, California regulation requires insurers to replace all historical catastrophe losses with a long term average of insured losses. Whereas actuaries consider catastrophe models to be the best available science for this purpose. Companies can't pass along the cost of reinsurance through their policyholder premiums, and the resulting rates are often not actuarily sound and don't reflect the true cost of risk transfer. This creates a gap between what insurers think that the cost is and what they're actually able to charge.

It's important to understand how out of step California regulation is with the rest of the country, and even with non homeowners business in our state. There's only two other states that historically have disallowed cap models for homeowners rate making, and both are moving towards lowering the barriers to model acceptance because they understand how important cap models are to addressing high risk, underserved markets. None of the other states that I know of require a backwards looking experience formula.

None that I know of prohibit the cost of reinsurance. Now, these states do regulate insurance pricing, they just don't regulate it the way California does. In addition, for California, earthquake catastrophe models and reinsurance loads have been incorporated into rate making for many, many years without, as far as I can tell, any issues faced by consumers. Flood, I'm just going to say, is a different issue than wildfire. Homeowners insurance doesn't typically cover flood, and there's very few current private options in California.

We estimate that less than 2% of California homes have flood insurance today, mostly through the National Flood Insurance Program. So our current flood risk is borne mostly by individuals in flood prone areas and the financial institutions who hold the mortgage risk. In California and much of the west, the epic snow from atmospheric rivers is starting to melt and the flood danger is rising.

So when risk is increasing and rates are too far behind, insurers have few choices other than to reduce exposures in high risk areas, which leads to unavailability. The fact that there's fewer competitors in the market produces fewer opportunities for price and coverage variation, which hurts affordability.

For policies who are in high risk risk areas, you will have rate increases that might promote more availability, but that will make the policies less affordable for those people, and that might lead to more homes that people can't afford to insure. There's also often coverage restrictions, especially for policies going to the fair plan. So we also have a potentially unreliable market right now. Insurers are challenged in multiple ways to ensure their solvency and stability. First, companies need reinsurance protection to pay their claims after catastrophic events.

But reinsurers are raising prices, limiting coverage, and even exiting some markets to improve returns. This is really a problem in California, as well as other states like Florida and Louisiana, where companies have lost, reinsurance companies have lost a lot of money and investors are pulling out. Second, and this is something we haven't really focused on today, the growth of the fair plan is a threat to the private insurance market that remains even if they get out of high-risk areas.

There are unlimited assessments to admitted insurers who remain in the market. They bear the ultimate risk of the FAIR Plan surplus if the FAIR Plan surplus and reinsurance are insufficient to pay claims. So what you have is a problem, like if you're in a bar with your buddies and everybody's drinking, and then your friends just throw some money down and leave the bar, and you stay, and you stay, and you stay.

Whatever the tab is, at the end of the night, that's what you're going to be paying. There is an incentive if the FAIR Plan gets too big for companies to get out. It's not that dissimilar from what happened with Silicon Valley Bank. I'm not saying that will happen.

I'm saying it has happened in other places, like North Carolina in 2008, when their beach plan got too big, we estimated at the time that they could have an unfunded deficit of up to 6.2 billion, whereas the total annual premium of all personal and commercial property insurance in the state was $3 billion. So companies started pulling out of North Carolina until the Senate passed a law that allowed some kind of recoupment of assessments. We just don't want to get to that point in California.

Lastly, the California rate filing and regulatory system is not perceived as stable because there's just a highly unpredictable rate filing process with respect to the cost, the timing, and the outcome. So I'd like to talk a little bit about how the Prop 103 regulation has played out over time. We've heard about this slide that I did a few years ago where we calculated that between 1991 and 2016, the industry had made an aggregate profit of about $10 billion.

Well, if you were here around that time of 2015-2016 we were coming five years into the longest drought the state has ever had. And I was on a rate hearing for a large California insurer that was seeking a small rate increase. And one of their reasons was because of rising wildfire risk through the intervener process. Consumer interveners and the CDI were arguing that the wildfire risk was decreasing and they were using that backwards-looking formula to justify it.

So this was 2015 and 2016, and I think we know what happened right after that. They weren't looking at the drought, they weren't looking at the expansion of policies into the WUI. We did see these high losses in the next couple of years, and after that the formula that we're allowed to use in California reflected those next two years of losses. We did an analysis of the three of the top 10 insurers and we saw their wildfire allowed cat load increase by 400%.

That is why we had an affordability crisis, because rather than allowing the premiums to go up as the exposures went up over time, we had this huge recognition of the risk that happened after the losses. So what I want to tell you is mathematically that formula disincentivizes taking on more risk. Once a company has a certain risk profile, they lose if they try to write riskier policies under a backwards-looking formula. They get rate relief if they drop the high risk policies.

So this is one of the reasons that we've got an affordability and availability crisis. The California market is precarious, and I think that there are several precipitating factors that could move us into a more severe stage of crisis. First, we could have reinsurance renewals so adverse that California insurers can't obtain coverage or they can't afford to continue writing here. Second, we could have major wildfire events that hurt company profitability, solvencies or perception of risk.

Third, we could have fair plan exposures becoming so high that companies feel like they have to leave the admitted market in order to not be stuck with the Bill. Last, CDI could be if they were given enough pressure to negotiate more generous mitigation credits that indicated, or hold up filings for rate increases for property insurers, or if the companies have poor experience in other related lines like auto, California could become less desirable than it is right now.

So why haven't our government policies worked to address this problem? First, the actions that are intended to help consumers can actually backfire unintentionally and accelerate the collapse of the insurance market. This generally happens because the actions are typically addressed at availability and affordability, but they don't consider solvency. This almost always rests on downplaying the risks. The policy actions can ignore the reality that the risks associated with wildfire and climate change, they're owned by homeowners in the community, they're not owned by the insurance industry.

They don't recognize that a broken insurance market is not the problem. It's a symptom of a larger problem, which is too much risk for the market to bear. In California, we've seen that a lack of understanding of wildfire risk has encouraged practices that increase it, which not only created a homeowner's insurance crisis, it also put more families in harm's way and drove up the cost of the State of protecting its citizens.

To restore health to the California insurance market, the price to transfer risk must reflect the cost to transfer risk and to improve affordability, we must drive down the risk. So Prop 103 is not the only problem here. As our prior speakers have said, we do have to resolve the affordability issue. So what we need for that is forward looking regulation and legislation that considers the unique nature of climate risk. We can't rest on formulas.

We must be flexible because we don't know exactly what's ahead of us. We must try to better understand and communicate risk and work collectively to bend down the risk curve. We need better data modeling, science, higher prioritization of mitigation versus disaster response, and resource assistance to the areas most in need. The government is going to need to work with a range of experts and stakeholders to understand what's the best path ahead.

We need to work together to communicate the true cost of wildfire risk and encourage practices that reduce the risk. So I promised you some good news. The good news is we can build safely and we can reduce the risk not only in the built environment, but also in the wildland urban interface.

So we've been working for the past year on a volunteer effort with fire chiefs, CAL FIRE catastrophe modelers, insurers, IBHS scientists and CDI to better understand the impacts of defensible space, home hardening, defensive action and the location on wildfire risk. And we're also trying to identify gaps in the current data and science. We're trying to figure out how to communicate community risk and take a unified message and make it easier for communities to know what to do. We have a vision and we have a plan.

The insurers have been generally supportive, although we're in early stages of research and we're happy to share more with the Committee. In closing, California leads the nation in technology, science, innovation, progressive values and collective action. Let's use these strengths to face the wildfire problem and work together to create a vision and address it. I'd be happy to answer questions and contribute the skills and expertise that my staff and I have to support your efforts. Thank you.

Thank you very much. That's a lot of good information there. I go back to, I think Mr. Wara also mentioned, I'm trying to say I'm so sorry. I just saw that you came back, sir, would you like, do you have any comments, questions? Okay. I think what I keep seeing or hear Mr. Wara also mention is the forward-looking versus backward-looking, and I think that's a big issue. Can you expand a little?

I think I heard you say that there's two other states, only two other states that don't allow the reinsurance. Did I have that wrong?

I said two other states that historically did not allow cat models. That was Georgia and New York. And for hurricane companies were not allowed to mention that they'd used a catastrophe model in their rate filings. But that's changed in recent years. Basically, they wanted flood insurance, and there was no way to get flood insurance in the market without catastrophe models. And they realized, I think, there were changes in regimes. So they've started allowing catastrophe models explicitly in rate filings, but only recently.

Thank you. And again, I think I heard Mr. Wara mention earlier, I don't want to put words in his mouth, but if I remember, he said it was part of the solution should be to figure out a method that's publicly acceptable to everyone. But we need to figure out how to be more forward looking in terms of what's happening. But again, I'm sorry. We're running up against the clock and we have to make sure that we leave this for the next Committee hearing.

So I want to thank you. Unfortunately, all of our Committee Members have different committees going on right now. So I will reserve my questions for another time because we have some gentlemen here that have been here for a little while. But thank you so very much and thank you for the information, and I will look forward to having you once again.

Thanks again.

The next one is going to be a little bit of a fast round here. We do have 15 minutes, but we are going to be sharing those 15 minutes with several folks. I would like to invite Dan Dunmoyer to President and CEO of the California Builders Industry Association. I do have Ted Gaines, President of the Gaines Insurance Agency. If he's here, we'd like to invite you to come up and David Capone. Correct. Managing partner, Mallory. Emory, Vasconi Insurance Services. Sorry for that.

Mike Falk, public policy economist, California Association of Realtors. And I think we have another seat up here. Bill Evans, realtor and branch manager, Alliance Real Estate. Oh, he's appearing by Zoom. Thank you for that. Dave Winneker, fire chief, Moraga-Orinda Fire District, California Fire Chiefs Association and the WHEAT Task Force. So I think we have enough seats for everyone. So, gentlemen, I know that we have a little bit of time constraints here, and we have someone that is appearing via Zoom.

Correct. And so I'm going to start and be very strict with our timelines here. So if you don't mind, please introduce yourself as you're doing this. And I'm going to start with Dan. Five minutes. You may proceed. Thank you.

Thank you. Thank you, Chair Rubio, and thanks to the Committee Members for hearing us out today. Dan Dunmoyer, President and CEO of the California Building Industry Association. Nine out of the 10 new homes that are built in California, whether it's for rent or for sale, are built by our members. We build statewide and we build all types of housing, from affordable to luxury. But the primary type of home we build is, for the first-time, home buyer.

Today, we're just here to talk about the fact that we do have an insurance crisis and how it's impacting our consumers. For those of you who know me a long time, you know, it's kind of interesting to be on this side of the table. I used to represent the insurance industry well, today I'm representing consumers who at this point are paying very, very high premiums to stay in their homes and frankly, are about to lose their homes because of the high cost of insurance.

So let's talk quickly about climate. We build in California now the most fire resilient, fire hardened, fire safe homes in the world we have since 2010. And this is kind of an interesting fact. Just building on what Ms. Watkins said and some of the different issues that we can do to make our communities safer for fire. Since 2010, there is not a master-planned built community for homes in California that has burned down.

Matter of fact, there's not a home that has burned down in a master-planned, fire retardant 2010 code built community. So the good news is we have achieved a mechanism when we plan the community right and build it right on the top codes in California. We can create master-planned communities that are fire resistant, retardant, and don't burn. The good news about that, too, is we can do it at a price point that's far cheaper than we build at urban infill.

We build urban infill, too, but that's primarily for millionaires. When you build a really nice multi story building in downtown, pick the city, it costs five times more than when you build in the suburban communities. It's just math, but it's a reality of it. So a lot of people say, why do you keep building in those fire prone areas? One, we can build them fire safe, fire wise, and they don't burn, and at a price that middle class Californians can afford.

So here's the crisis we have. The Commissioner has done some really good work in working with the fair plan to try to expand some short term coverage. The FAIR Plan is only a very short term solution to this problem the private market has to solve. It's the only market big enough to solve, and the FAIR Plan is not big enough.

He did expand it to allow for $20 million per location for risk, and the FAIR Plan is working on that now, which is a good first step. But unfortunately, all the product that we build in California for condominiums is in excess of $20 million per location. So it doesn't solve our problem. And why this is most profound for California is condominiums is the most affordable housing product we build in California. It is primarily bought by people of color, Latinos and African-Americans.

And it is the product that allows people to get the American dream at the best price point that we have as a home builder. And so the challenge we have, though, right now is our condo projects in almost all the state are now on hold because we can't get insurance. If we build a single family, detached, multimillion dollar home, we can get insurance for the FAIR Plan up to $3.4 million.

But if we build a $480,000 condo in North Orange County, which is amazing, that price point in Orange County, we cannot get insurance because it's considered a commercial habitational risk. And so we continue to work with the Commissioner and seeing if we can, for a very short term, expand the FAIR Plan to address these condos. Two quick things on Prop 103. Prop 103 does a good job in price controls, but it doesn't do a good job in recognizing market realities.

So I'm in this untenable position of advocating that the insurance Commissioner, and Mr. Rosenfield, and any interveners, allow the insurance industry to get rate increases. I don't care if they're 30 or 40%, because right now we have been offered insurance in the non-admitted market, which, by the way, Prop 103 does not touch. And by the way, when you buy a non-emitted coverage, there is no backstop, no mechanisms, no guarantee fund to bail it out if it doesn't pay.

But our rates aren't going up 40%. In the non-emitted market, you have less than a minute they're going up 6,900%. There is no consumer protection in the surplus lines market. Not picking on it. It's set up as a market of last resort, but it is failing to address the price point. The affordability issue that Ms. Watkins talked about is out the window. So we urge the insurance industry to sit down with the Commissioner to work to solve this problem to come up with if it's a 40% increase, give it to them.

Last thing I'll say is, when you buy a condo, you pay a mortgage. You also pay what's called the Homeowners Association dues. Those dues right now are averaging about $250 to $300 a month. Because of this high cost of not admit insurance, it's going up to as high as $1,500 a month. The Insurance and homeowners Association dues are in excess of the mortgage, and we need help to have that fixed.

So we look forward to working with you, Madam Chair, and the Committee Members, to bring the industry together, work with the Commissioner and the consumer leaders to create a solution to this very serious problem so we can sell condos and so people can stay in their homes if they bought a condo. Thank you, Madam Chair.

Thank you. And I'm sorry. I felt, to share why I felt it was important for you to be here, as we are now dealing with another crisis, which is the housing and homelessness issue. Since our last Committee hearing, we started getting a lot of calls from folks that have HOAs that are having a very difficult time getting insured. And I think you stated somewhere mid-200s HOAs to really expensive HOAs.

And as we're trying to figure out this housing crisis, our goal is to build more housing, not less. And as Janet was sharing through other conversations we've had, that they have to focus on single family homes because they can be insured versus the more affordable option for other folks that can't afford a single family home. And so this insurance issue is trickling down to other issues that we're dealing here within California.

And it's important to take stock of that issue, because building homes that are affordable, that can get people into home ownership, is important not only to me, but the entire State of California. So that's a real crisis. And even last informational hearing, I invited the FAIR Plan to share a little bit of what they're hearing because the calls would not stop coming in and that is why we were able to increase it to 20 million because it was necessary at the time. But that's not sustainable.

So we want to thank you for your perspective, which is really important. And forgive me, again, we're going to have to speed through the last part of it, really. Thank you, Dan. And I'm going to turn it over to Senator Gaines. You have five minutes, if we can keep it very succinct. Thank you.

Wonderful. Thank you, Senator Rubio. Thank you, Senator Niello, for this opportunity to speak. I'm an owner of a small insurance agency, independent agency with my wife Beth and our daughter Haley. We have three additional full time employees and a part-time bookkeeper. As independent insurance agents, we represent a lot of different insurance companies, but they are smaller in the marketplace compared to a State Farm, or Farmers, or an Allstate.

And so the impact of the market through applications that have been submitted to the Department of Insurance that have not been approved is basically shutting down the insurance market. But I feel like there's more pressure on independent agents, although I've heard there are challenges, even with State Farm not being able to write homeowners as they were even a month ago. Our personal experience is that with nationwide, we are one of 400 agents that lost our agency contract.

So we've got several clients that we're racing to find coverage for. Oregon Mutual has recently pulled out on the personal line side. Golden Bear, another small insurance company based out of Stockton, had kind of a blue collar homeowner's policy that was really affordable, like $600 a year. They went to the Department of Insurance asking for a rate increase. They were not able to get that rate increase, and so they just pulled out of the market.

And so we're kind of in the middle as agents trying to find coverage for our clients. It is not sustainable. I had an opportunity to hear Victoria Roach, who is the President of the California FAIR Plan. And this is very sobering because if you look at what's happened in California since 2017, we've had $40 billion in losses as a result of wildfires, 40 billion. She shared with us that if they had $1.0 billion loss, they couldn't pay the claim.

So if we have another wildfire that's concentrated where the California FAIR Plan is writing a lot of coverage, as was stated earlier in testimony, the insurance companies, I'm assuming, will be held liable for the shortfall. And I think that will continue to create a decline in the marketplace. But bottom line, I just want to make sure that we can provide services to our clients and the market is tighter than it's been in, I would say at least three decades I've been in.

We don't want our companies pulling out of the state and creating a bigger mess for those companies that feel an obligation and may have more economic might to stay here a little longer. We just need a good, stable insurance market. So thank you. I appreciate it.

Thank you. Senator Gaines, your perspective was important as I'm having meetings in just different areas of the state, talking to small companies like yourselves, and they're having a hard time. And so I really appreciate you bringing that voice forward because you're the, I don't want to say little guy in the middle, but you get caught in the middle of what's happening up here. So I just want to say thank you. And your perspective is very, if you.

Talk to your local insurance agents, I think they'll tell you similar things, similar.

Stories, and that's what I've been hearing. So your voice is important. So I will now turn it over to David Capone. You may proceed when you're ready. Just keep in mind we have five minutes.

Thank you, Madam Chair. Thank you very much. So much of what I had to say today has already been said, and there's a few things that I'd like to reiterate. One, I'm a managing partner of Balloon Rivasconi. It's an insurance agency in the Napa Valley. We have 133-year history of serving the Valley, and I've been a partner there for 24 years. I'm also a retired fire captain with the fire department in the City of St. Helena. I served for 21 years there.

I have fought fires around the State of California and also the 17 fires in Napa and Sonoma, as well as a glass fire that did so much devastation in our community. There's so much good things that have been said. As I said already, what I'd like to point out is I think that Prop 103 has kind of come full circle. It started out with a noble intent, I think, but is now hurting consumers.

And as a constituent of Senator Dodd and Senator Alvarado Gill, their districts are being decimated by this problem. The insurance affordability issue is something that is just heartbreaking to describe. It is seeing clients lose coverage after decades of being loss free. Having them look at rate increases that are in the hundreds of percent Senator Dodd mentioned. He has constituents that are going naked all the time and I can't stress that enough. Our client base is picking and choosing between what they can possibly do.

And it's because of the things that Prop 103 is doing that impacts the rate filings and health rates are being approved in the state. The one thing that was said that really concerned me, California is an immense state. There's many statistics that back that up. But to hear the Department say there's a very small number of rate filings that are coming to the Department, I can't imagine that I know why that is.

And it's because when carriers go through that rate filing process, the abuse that they go through with the Department makes them not want to approach the Department. They've been getting some rate increases, but those are nominal. And in a lot of cases in our areas, it's really constricting the availability of coverage. I did bring with me an email exchange that I had with a carrier partner that has served many of our clients in the Napa and Sonoma area.

And he said to me in this email, "As recently discussed, we're looking into non admitted property options as a way forward in California with new and additional coverage offerings. We both know there's tremendous opportunity to help insured solve real problems here. Unfortunately, the process at the CDI DOI is impossible. We've paid over $100 million in wildfire losses. We still retain $6 billion of property values, exposures, and somehow, we're the bad guy. Such a shame". That's the point.

And with every carrier that I talk to, you would hear the same thing. They can't make the modifications to their form. We keep talking about rates, and rates are important, but even changing some of the way that the insurance forms works gives carriers a little bit of relief in order to provide coverages that they can't provide now. Thank you very much for your time. Glad to answer any questions.

But again, the lack of rate filings that are coming to the Department, the time that it takes and not being able to adequately adjust forms and adapt rates to the market, the exposure that we have with wildfire and climate change is really devastating our market.

Thank you for that. We recognize that. We're sorry, your conference is ending now. Please hang up. Excuse me. So anyways, we recognize there's a lot of issues, but I do want to say in insurance Commissioner Lara's defense, this is the way the system is set up in terms of the rate filing. He has to adhere to Prop 103. It's a trickledown effect. So, he's just having to comply with what's in front of him.

And we have these conversations often, and that is, again, the system that we have set up right now. But I appreciate giving your perspective. I will now turn it over to Mike Falk.

Madam Chair, could I ask a quick question? Zero, my. Sir.

No problem. But it's timely with the two, particularly the two agents who have testified. Mr. Rosenfield earlier stated that the insurance companies have generally received the rate increases they've asked for. I think he cited aggregate over time requests being 10.8% and they've been granted 10.2%, something like that. The testimony that both of you have given completely flies in the face of that. How can you help me with that?

You can make statistics say what you want them to say, and insurance companies are only asking for what they know. They won't get harassed on what they know that they can get through. They're not asking for what they need. I have yet to come across an insurance company that doesn't want to make money.

And leaving the state is a sign that it's a not sustainable position for them if they can't avoid the exposure, if they can't get the rate that they need without getting into that position with the Department and Prop 103 and people asking the process taking two years, two years to get a rate filing, we're going to have another glass fire event in those next two years.

And your rate filing that you asked for two years ago that you may finally get is going to be completely inadequate at that point.

I think they could avert a lot of challenges if they could get through the rate approval process a lot more quickly, because in a way, you're creating adverse selection. So a lot of the companies like Progressive got a 17% rate increase. That's good. But they can only handle so much capacity. Right.

So they want to be careful when it comes to the property of not insuring too many homes in any one particular area because it could take down an insurance company like it did Oregon Mutual and the Paradise fire. They had too much concentration in paradise and the company went bankrupt. So, they've got to be careful that they're not getting flooded. If you were able to get approvals through more quickly, you would have a broader market and more options for insurers.

How much does the intervener process contribute to this?

Well, I think it needs to be sped up. Right. Anything we could do to speed up the process would be helpful. So I think it's anything over 6.9 has to go through an intervener process. That's my understanding. If that could be accelerated, that would be fantastic. But the problem is that a lot of these, you can go through the process at 6.9, but that's not enough of a rate increase to justify an insurance company to be able to make money in the state.

It's really in their self interest to want to write insurance in California, but they've got to make a profit. I think under Prop. 103, it still allows a profit similar to what a utility would make. And if you have a large insurance company that's operating in 50 states and they can make money in, say, 49 and not in California, then they're going to pull back. And that's what we're seeing is that we're getting requirements that you have to bundle insurance from insurance companies.

So if someone's calling you for a homeowner's quote, zero, well, we want the auto too. Well, maybe they have the auto with AAA and they don't want to move that. So we're experiencing challenges like that or to slow down the flow. Insurance companies are saying, well, we need 10 days before we'll buy in coverage. So we're experiencing all these hurdles in order to provide coverage for clients, but it still comes back to this rate approval process and letting it reflect what's really happening in the marketplace.

So a lot of the regulations that we impose in California are many times imposed with the implied assumption and many times unstated assumption that California is just too good a market for businesses to not want to be in. And you're implying that that may be the case, but you're also saying that insurance companies, because they can make more money in other markets, are leaving this market.

Now, are we approaching a point where so many companies exit the market that we can't get insurance coverage not because of rate issues, but just because it ain't there?

Yeah, I think we are. I think the example of Fairplan, if Fairplan has $1.0 billion or more loss, you're going to see a lot of insurance companies making decisions to pull out. Now here's the tough part. Apparently, after pulling out of the market in California, you're still obligated to pay in to the fair plan obligation for two years.

So you may have companies that are making preemptive decisions to pull out of the market because they don't want to be obligated about a future fire that could occur for which fair plan would be paying claims on.

Thanks.

I see that intervener process as being a deterrent to insurance companies doing more in the state. It's more of a deterrent than a delay process. And the exodus of insurance companies I see in the near term as having increasing velocity. It's going to continue in my view. And I think as the next one pulls out, you're going to see two the next time, five the next time, and a very rapid expansion of that contraction from the California market.

We keep talking about the fair plan and there's been much about that, but the fair plan is not insurance. I mean, it's insurance, but it's not the only insurance that that client needs. They also need a companion policy to go with that. The fair plan is simply the minimum standard to meet the financial obligations of your mortgage. It's not the insurance that you need for your home. It doesn't include any liability coverage. It's not a full solution.

So even though that market exists, they're still going to that non standard market and paying very expensive premiums for the other coverages they need, if they can get them.

Could I make one more comment on the reinsurance market?

Because that could be a whole nother mess because the reinsurers are coming in and they're layering coverage. So the insurance company might take the first $1.0 billion in claim obligation, and then you bring in reinsurance and you layer it with different insurance companies. But if they're not able to get the rate that they think they need, then they'll pull out of the market and then you've got a real mess on your hands in terms of companies even being able to provide the coverage.

Thank you.

So I think that is a flaw in terms of when you're looking at rates. If you can't take reinsurance into consideration in terms of approving a rate increase, that just doesn't connect with what's happening in reality.

Thank you. I just want to add a little bit to what you just said. I hear often the criticism that the insurance insurers keep asking for rate increases over and over again, and I find the 6.9 cap to somewhat be an issue because they have to ask for 6.9 to make sure that they don't have to go through the convener process, but then they have to keep coming again over and over again. And that's not quite the adequate rate increase that they need.

So again, the system is flawed as I see it. And not that it's wrong or good or bad, I think we have to really look into that. I mean, I would rather have someone that's going to ask for what they need one time and get it approved versus trying to sort of play to these. I don't want to disrespect the market, but somewhat of a game because you want to stay under the 6.9 just to make sure you don't get delays and delays.

And so again, it's just the way the system is set up. I'm just posing this sort of the question in terms of something that we might have to explore. I'd rather have someone do it once and get what they need versus everything that we're discussing here. Right. Just staying under 6.9, some of them not going for rate increases at all just because they don't want to deal with the process and it's costly and it's lengthy.

So anyhow, again, all these are good questions just to pose and explore and see if there's possibilities of review. And I believe Mr. Dodd said it earlier, it'd be great if we can have consumer watchdogs with the insurance industry, CDI, everyone, the market come together and see if we can figure out solutions for this so that we don't have to be playing these somewhat games of staying under 6.9 and not getting what they need. So we're going to move over to.

Now let me just give over here. I was going to go this way, but I'm going to continue on this side. I'm going to allow the chief, Dave Winnicker, to say a few words and then I'll turn it over to you. And I know we still have someone on Zoom. So you have five minutes to share what you see and I will remind you when you have a minute. Thank you.

Thank you. Madam Chair, Members of the Committee, my name is Dave Winnacker. I'm the fire chief of the Maraga Rinda Fire Protection District. I also lead the California Fire Chiefs Association Wildland Urban Interface Task Force and represent that group on the CAL FIRE mitigations and risk modeling workgroups. I'm also a Hoover and veteran fellow at Stanford University working on the intersection of wildfire and insurance availability. I think there are two immutable facts about wildfire that are worth remembering.

One is that it's a natural and recurrent part of the California environment. While Dr. Wara, whose opinion I respect greatly, referred to the fires of 20 years ago as quaint, I would argue the fires of the last five years are quaint compared to the predevelopment natural state in which four to 8 million acres burned per year in California, that is simply what a fire prone and fire adapted environment requires to remain in equilibrium.

And while we've excluded wildfire for the last 120 years, as we have built homes in these areas, we haven't stopped photosynthesis. And there now is a Bill essentially coming due with regard to the accumulation of combustive vegetation and other materials in these areas that can and will burn with destructive results. The second, immutable truth of wildfire is that there are only three factors that contribute to wildfire spread, and those are topography, weather, and fuel load.

The topography is unchangeable, the weather is bad and getting worse, and the fuel load can be modified. And when fuel load is modified, fire cannot spread with the same speed and intensity it does in an unmodified environment.

And as we are able to harness and achieve alignment around the need to reduce wildfire risk, specifically through the modification of fuels and the development of fire adapted and resilient communities that are characterized by hardened homes, either new construction or retrofits, sensible, thoughtful retrofits of existing homes, and the creation of defensible space around those homes as required by existing state law under PRC 4291 and Government code 51182 for many years. These are not new changes.

This is long standing yet poorly enforced, with poor adoption rates in many of our most exposed areas and thoughtful interventions to create modified fuel areas along the fire pathways that will lead wildfire into our communities. As we achieve those goals, we will reduce the negative outcomes we have seen when the natural, recurring, and predictable future fires occur.

If those fires do not damage the values at risk, we have stopped the bleeding, if you will, and we have set conditions for what is going to be a multigenerational effort to restore balance to our forested environment. As a local government fire chief for the last five years, I have worked day and night to reduce my community's exposure to wildfire risk.

As the fire chief and the fire code official, meaning I have the authority to pass more restrictive and progressive amendments to the fire code and more restrictive ordinances, which we have done, and we have sought to get our community to adopt them. One of the challenges we have is that wildfire is an abstract thought for most residents.

On the other hand, insurance is an annual concern for residents, and I get far more questions from the residents of my community about the impact they have when it comes to either rate increases or, more recently, availability of insurance. There are far more questions on that topic than there are on the question of wildfire, because in the East Bay, where the fire district is present, we have not had a major destructive fire since 1991. So, fire is abstract, but insurance is annual and recurring.

And if there is alignment, which I believe there is, between government regulators, industry, fire service and residents around a desire, a shared desire to reduce wildfire loss. A resident does not want to receive an insurance payout check from losing their home. They would much rather not lose their home, just as a carrier does not want to write that check.

We are all in alignment around this when we are in alignment, and we can understand that alignment, and we can speak with one voice about the mitigations that matter, that be core mitigations for creation, defensible space and thoughtful home retrofits, specifically the replacement events and nonclass A rated roofs. We can then quickly move to reduce the exposure risk by harnessing the market's ability to price risk and the signaling that pricing of risk sends to residents for the need to do this work.

When we do not have that alignment, we encounter emotional barriers to the reduction of wildfire risk having to do with people's sense of place, with their attachment to vegetative items in close proximity to the home that are directly correlated with very well reviewed and accepted science to increase wildfire loss, and we encounter resistance in most cases. This is not a matter of resources. This is a matter of will and desire to do the work.

On one hand, we can say there are 1.2 million homes in the Wildland Urban interface in California, which is a daunting number if viewed from a centralized, top down approach.

On the other hand, we can say the 2.4 million residents of those 1.2 million homes, if properly incentivized, educated and encouraged, can make short work of the Low cost, high impact mitigations to reduce their homes exposure to wildfire, and not only to do it once through one time intervention, the initial entry, but to maintain it over time as is required, and as we identify the opportunities to report and verify that information into the cat risk models that can be used for the pricing of risk.

We can see a community's average annual loss fall precipitously because in the current environment, a community such as the one that I represent, that has made enormous investments in defensible space, home hardening, the interruption of fire pathways around our community and our firefighting response, the weight of suppression attack we can put against a fire we are effectively penalized.

Because there is no mechanism for us to report this good work to the insurance industry so that our premiums, the premiums paid by the residents of my district, reflect these investments in the current environment. That simply does not happen. I believe we will need those mechanisms in order to scale this and to rapidly move to a more fire adapted, resilient future where our communities can experience close proximity to wildfire without that naturally converting to loss.

I've served as a frontline responder on many of the major wildfires that were mentioned before, and we spend enormous amounts of time and divert enormous numbers of firefighting resources on these fires to the creation of defensible space around homes that are being maintained in violation of long standing and well established state law that are siphoning away resources that would otherwise be able to manage or contain the fire and fail to set conditions for firefighters success.

As we mentioned earlier, we have made enormous investments at the state level in our firefighting response. We have many more firefighters, tankers and other deliveries of suppression mechanisms now than we did before. But when homes have not created defensible space in advance of the fire, we have not set conditions for effective firefighting response. Firefighters, in the face of a fast moving fire, are unable to both fight the fire and prepare homes to receive fire.

And prioritization is normally giving to preparing homes to receive fire, which takes away from our efforts to otherwise contain or suppress the fire. I believe by recognizing and advancing the alignment amongst all the players around shared understanding of mitigations that matter not only what they are, but the presence and the verification of those on an annual basis, we have an opportunity to rapidly move the needle and reduce our state's exposure to wildfire risk. I'd be happy to answer any questions, and I'm grateful for the opportunity.

Thank you, the Members. Any questions? No. Clearly, you know your craft. If you want to just expand a little bit, I know that we've made investments. Can you share a little bit of the technology that perhaps someone in this room may not know? What are some of the new technologies that you guys are investing in or implementing that we perhaps have not seen.

For prevention or response?

Prevention?

Yes, ma'am. So the first piece having to do with prevention is ground based assessments so that we know what are the conditions around a house generating from those, a standardized report that gives a homeowner a succinct list of these are the mitigations that are required. One of the challenges we have is we have conflicting and confusing information reaching homeowners that reinforces the status quo bias. When people hear multiple things, it gives them a very, which are in conflict with each other.

It gives them a very easy pathway to doing nothing. So the standardization of the inspection process and the delivery of that information, state fire training, one of the Office of State Fire Marshal Functions recently adopted, approved and have fielded a standardized home inspection, home ignition zone and defensible space inspector course. That is a step towards the standardization of that information. And the next, which is an evolving area, is how we can report homes that are in compliance with understood and accepted mitigations.

How we can report that information to cat risk modelers so that their models will reflect conditions that are actually on the ground instead of a dated satellite picture that may be as much as nine years old, depending on which fuel model they're using now. Work in that area continues to evolve, working with my colleagues, Michael Wara, Nancy Watkins and others who we convened at Stanford.

Leslie, thank you. So, I mean, I heard you say that it would be. You just actually mentioned that reporting just the investments in real time versus having to look at these satellites model. I know that's an issue. I think I talked to partners across the globe, I think in particular New Zealand, and they're allowing that type of information to come forward in real time.

And I know that we are still having challenges and trying to agree if we can use cap models and be more forward looking. But thank you for that information. I'm going to move on because I have to, but there's so much there that I want to reach out to you offline to make sure that we sit down and see how we can take the information you just shared and put into policy and see how we can help you in that area.

Well, I guess I do want to give you this last question. If you're sitting in our seat, you had the ability to create policy. What would be that top line item that you would push forward?

Enforcement of existing defensible space regulations. There is a delta between the assessment activity that's occurring and the associated violation notices that compel action. There is also a delta between efforts taken out at the state level to enforce state minimums and local government efforts, which include modifications to amendments to the fire code minimums and local ordinances which meter exceed state minimums. Right now, those efforts are not aligned.

Most of the homes we are talking about in the Wildland urban interface fall within local government jurisdictions, either municipal fire departments or fire districts. There is not alignment around the inspection and enforcement process. And as a result of that, we do a lot of tire kicking where we're explaining to folks, hey, these are the things that should be done.

My experience in the fire district is if that's not accompanied by a citation giving 30 days to comply, we can spend years going back, working through the outreach and education side. There is an important role for incentives as well, but ultimately these must be followed up with enforcement.

An analogy I would use right now is that if you have a taillight that is out and you were pulled over by a police officer, they inform you that your taillight is out and that is accompanied by a fixit ticket that gives you 30 days to correct the violation. I think we need to move similar unapologetic enforcement in the defensible space arena.

Thank you. And thank you for all the work that firefighters do. Appreciate your work. I will now move over to you, sir, and I believe, let's see here. Mike Falk, right. Public Policy economist, California Association of Realtors. You may.

Thank you, Madam Chair, Members of the Committee. My name is Mike Falk. I'm the public policy economist with the California Association of Realtors. I do have a presentation. I'm going to breeze through it in the interest of time, partly because a lot of previous speakers have touched on some things I've talked about in a more competent and interesting way than I possibly could. And I also made 11 slides for a five minute presentation. And I'm supposed to be the guy that's good at math.

Here we go.

And I will remind you when we have a minute to go. Thank you.

So, as the previous speakers have noted, outlining the problem for insurance, 11 million Californians, nearly a quarter of the state, live in high risk wildfire areas and nearly 2.7 in very high risks. And these numbers have fluctuated, and I've seen different numbers, but these seem to. Be.

The best numbers I could find. And I just want to plug real quickly about flooding and, you know, coastal rise. 1.5 million properties are at risk of severe flooding, and only 2% of those properties have flood insurance right now. So that's a problem to keep an eye on in the future as well. I did some research into how many structures have been damaged and lost by recent fires.

And what I found since 2005 is that 65,000 structures roughly have been destroyed, and that could be homes, commercial buildings, outbuildings, and four of the five worst years of loss of property occurred in the last five years in recent fires. And so how much are premiums increasing? I found this in a couple of different studies, but this was probably the best I found in very high risk categories.

On average, it's 24% for homeowners insurance, about 57% for the fair plan, and again, that's an average in very high risk zip codes and areas. That percentage might be significantly higher, and you will have higher rates of non renewal in those areas. And this amounts to a couple $100 for a lot of homeowners. And I really want to place that within the context of the affordability crisis that we're currently having in California in terms of housing. So this is where I'm most comfortable.

This is the Housing Affordability Index. The research team that I work with, we all put this out today. So this is the percentage of households that can afford a median priced home in California. California as of this last quarter, that number is currently 20%. And when we're talking about increased premiums, increased barriers to home ownership, we're tacking that on to a housing and affordability crisis that is relatively severe. I mean, very severe.

If 20% of families can afford a medium priced home, that's a very Low number. Then three things kind of go into this. Three ingredients. First, the cost of a medium priced home. Second, interest rates, mortgage insurance, things like that, which, as you know, are fluctuating and going up.

No, we're hearing, I guess, noise on our teleconference call. If we can ask people to mute, that would be great. Thank you. I'm so sorry.

That's all right. That's just my Boss giving me notes. And so, I wanted to put our current affordability crisis into context because I can say 20% and then everyone will be like, zero, yeah? Compared to what? So back in 2012, the first quarter of 2012 for California single family housing residences, the Housing Affordability Index was 56%, which means that 56% of families could afford a medium-priced home in California.

And obviously, that's going to be different in LA, that's going to be different in San Francisco and different in rural areas. But that's California as a whole. It's down to 20% now and with lack of supply, lack of building, and a lot of folks staying in their homes because of Low mortgage rates, right now, I would expect that the housing affordability crisis is going to stay where it is.

And this presents a particular problem for first time home buyers who generally have less means for down payments and who are already priced out. And when we're talking about higher premiums and an affordability crisis right now, any additional cost on top of this is going to be pricing out more potential homebuyers who could be building wealth. I'm going to skip past this slide because it doesn't have a graph.

We made a survey for our realtors last year where we asked about wildfire risk, and we asked, did you represent any clients who have a wildfire risk? And we had about 1800 responses and about nearly half of those responded yes. Of those that said yes, about 80% of those folks had issues getting homeowners insurance that covers damage due to fire, whether that is the cost, whether or not it was going to be renewed. And so 80% had a problem with that. I can't see bills.

All right. So about 88% had difficulty obtaining insurance. Of those near half, 83% saw an increase in a premium. Almost 60% saw cancellation. So this is not only affecting the affordability of housing, but it's also affecting the market as well. And I believe that is it for me. 1 more. Nearly a third of buyers decided not to buy in certain areas, according to our realtors in this survey, because they had difficulty obtaining fire insurance. So it's a barrier and it's something to be aware of.

Thank you. Thank you. And again, it was important to bring the conversation in terms of the builders and what's happening in the housing market because again, that's an issue that we're trying to tackle almost simultaneously with their insurance crisis. Right. And so thank you for that perspective. And I know we have one more participant who's joining us through Zoom, Bill Evans. I'm so sorry. I know you've been waiting quite a bit, and so please try and keep your comments as concise as possible. We appreciate it.

Thank you and welcome.

Thank you, Madam Chair and Committee Members. Wow, what an amazing investment of time. The chief was exactly right. I represent an office of a large firm in the foothills, the Wildland Urban Interface, and we live with this and have been living with this every day. The rules around what was going on with insurance used to be a few years ago, insurance was one of the last things you did on an escrow process.

Now it's one of the first things you do is to find an area and see that it's affordable. We're finding on talking to local agents that are writing policies in Nevada County, Upper Platter County, Colorado County, that 80% to 90% of what's being done in our market up here is the fair plan with a wrap. It's a couple of quick stories and then we'll move on. One of our friends had just got a policy increase.

They have a house in Placerville, basic three bedroom, two bath home, about 1900 sqft. They just got raised from 2000 to 5500 on their policy. And this is a traditional insurance policy, not a fair plan policy. Looking at the affordability, which Mike spoke about, you were looking at on today's current rate at about six and a quarter percent puts it about $10,000 value, $10,000 value for every $65 a month. So in that raise for that particular person, it would affect their affordability by $45,000.

And this is an average home. So if we move up a little to average or entry level, we could be looking at 45, upwards of $90,000 cost difference as related to what they can afford in their mortgage payment, what they can qualify for. Another point to what the chief had mentioned earlier. One of my good friends, who's also part of our insurance task force, lost her home. She had over 100ft of defensible space.

The property was meticulous metal roof with a fire hydrant, two entrances and exits on her property. However, the neighboring property had no mitigation. It was overgrown, there were abandoned vehicles. That property burned so hot that her and her neighbors lost their homes before the fire Department could ever show up. So to make it to me, it's very real because we live with this every day. So education and engagement. But to what the chief had said, enforcement.

We have to have the ability to get people to understand the value of firewives and fire safe communities. I believe it's one of the insurance companies have a right to make a return on investment. We understand that, but we can do more. The people who live in these areas will do more if we're guided and we have the assistance as well as the enforcement to make the people who are not doing the right thing to protect the properties. So that's all I have.

Unless you have questions.

Thank you. I just want to underscore the importance you shared about this homeowner who did everything possibly she could have done in terms of defensible space and everything to ensure that the home survived. And it's the neighbor who actually caused the loss of home. So I want to underscore the importance of doing community home hardening because we need the entire community to be safe. I really just want to thank all of you. I know I'm going to turn it over to sergeants if we have callers.

I know at some point we got disconnected and I can't allow comments, but I think I'm just going to allow name. Can you check to see how many people we have, if any, on the teleconference call? Okay. I'm going to ask those here very briefly too, if they have anybody in this room. Any comments you want to just say really briefly that would help out. But again, to all of you that have been here, it is an incredible investment on this time.

This time really has given me a broad perspective of all issues. And I hope that anybody that's listening at home and all of you here have taken a lot away. I know I have a lot of information right now to dissect, and I have a million questions. Unfortunately, time does not allow it.

But I know for some of you that need to go, I want to excuse you in case you have other commitments, but I will allow the Members of the public to make comments very briefly. Thank you, all of you, for your time. And you are welcome to step away from the dust. Thank you. So we'll turn it over to you. We have someone wishing to speak as briefly as he can. Thank you.

Thank you, Senator Rubio and Members of the Committee. My name is Robert Harrell. I'm the Executive Director of the Consumer Federation of California. And I was, as a very young college student in 1981 of the canvassers for what was then called Voter Revolt, which has now morphed into consumer watchdog. I just want to provide a tiny bit of context beyond that which Mr. Rosenfield provided, which was helpful.

So can I ask you to keep it under a minute, please? Thank you.

You can ask that. Sure. I'll try to do so. There were five initiatives on that ballot, two of which were put on by the insurance industry. And I think the trial lawyers put a couple of different variations of something on the ballot, too. So the objective just, and some of you were around, but some of you weren't, was havoc. If you modernize those dollar numbers, it dwarfs, for example, what Uber and Lyft spent on Prop 22, the 200 million that they spent.

So there's a context there that's important. I think there's a subtext of this hearing that gives me pause, which is the notion that there's going to be some sort of opening up of 103 to what I would interpret as a potential full frontal attack. I noted where Mr. Dunmoyer, who's a worthy adversary and a former insurance industry lobbyist for many years, very casually just said, if they ask for 40%, give it to them. The Department is processing rate increases at a really rapid rate.

And I think this notion that you can get statistics to lie, I think, isn't borne out when you look at NEIC data, when you look at Department of Insurance data, when you look at all the data available. As someone who worked at almost a half a dozen years at the Department of Insurance, I can finally tell you the rate filing process.

What often happens is a rate filing comes in, in many cases it is inadequate or doesn't answer basic questions or is incomplete, the Department then processes that and asks in some cases, short, medium, or long list of questions. And then they wait, and they wait, and they wait and they wait. Then the insurance industry turns around and blames the Department for what 's taking this so long.

I need you to start wrapping it up. Thank you, sir. I'm so sorry.

We would urge you, I agree with the fire chief on enforcement of defensible space. I think that needs to be stepped up. I think there's a disconnect on fire between local government, some of the local decisions that are made there, and who pays for the externalities. We would urge you all not to fundamentally attack Prop 103 in this process. Thank you.

Thank you. Anyone else wishing to speak? Okay, no one on the line. Thank you to all of you that are here. I know for me it's an afternoon well spent. It's a lot of information. And I heard the last speaker. It feels like it's somewhat of an attack on Prop 103, and it is something that is here to stay.

But it's just a matter of seeing where we can sit down and explore options on how do we move forward in a way that respects 103, but also takes into consideration all the new factors that were not here in 1988. So I understand the passion, and I've had conversations with Harvey as well. Again, it's not about right or wrong. It's about how do we move forward from here. There is a need, there is serious concerns.

As one of the speakers stated, a homeowner went from $2000 to 5000, $500. And that's just assuming people have disposable income hanging around. And of course, that trickles down to the quality of life for that family and their children. And there's so many things that happen as a result of.

So I just wanted it to have a really comprehensive hearing where we can kind of connect all the dots I spoke about, just even speaking about firefighters and what they have to deal with. So there's a lot of pieces here that we've been exploring, and I hope that, again, that we just creatively think outside the box and see if you have any ideas.

We're always open to suggestions and considerations, and we will continue these oversight hearings to continue to give people a voice and the opportunity to share their concerns. So thank you, every single Member who came up here to testify and take the time to educate us. Again, we're not all experts in every single topic, but this is really informative and so thank you, and I hope you have a lovely day. And this concludes our hearing. Have a good day. Bye.