Assembly Standing Committee on Insurance

Welcome to the Assembly Insurance Committee Oversight Hearing of the California Department of Insurance. This hearing is focused on the Sustainable Insurance Strategy announced in September by Insurance Commissioner Lara. Today, we have the opportunity to hear from the Commissioner about his strategy. As we know, the status quo for our constituents is not sustainable. The California insurance market was built on keeping insurance rates fair and affordable while also ensuring a competitive market.

When these goals were solidified decades ago, it did not account for the environment we are in today. Our constituents need options. The more insurance companies issuing insurance policies, the better. Options are no longer available. Our constituents also need stability. They don't want to live in fear of being non-renewed. Lastly, our constituents should not be utilizing the FAIR plan as the insurer of first resort. Yet it seems our current market has altered the purpose of the safety net.

This could have grave consequences if a natural disaster occurs. It takes a lot of courage to make difficult decisions. I commend the Commissioner for using his authority to analyze the current insurance market and for coming to the conclusion that modernization is much needed. I'm interested to hear today how and when the Sustainable Insurance Strategy will be implemented. I also want to know when our constituents can expect more insurance options, stability, and when they can stop resorting to the FAIR plan.

At this time, I would like to provide my Committee Members the opportunity to make brief opening remarks. Okay, we still have two other Members that will probably come in. They're probably parking, so welcome, Insurance Commissioner Lara.

It's great to be here in beautiful Pasadena City Hall. Good afternoon, Chairwoman Calderon, Assembly Member Wood, staff, and hopefully we see Vice Chair Essayli coming in. Thank you for inviting me to speak with you today. As you know, California is at an insurance crossroads, and for many Californians, this is an insurance emergency. Consumers are experiencing the impact of growing climate threats, historic inflation, and outdated regulations. As a state insurance regulator, my focus is safeguarding the integrity of the insurance market, which includes protecting consumers and businesses.

In September, I announced my Sustainable Insurance Strategy, which is the largest insurance reform since voters passed Proposition 103 nearly 35 years ago. There is no question that the risks that existed when voters passed Prop 103 are not the same risks we are facing today. The insurance market we are dealing with today necessitates urgent measures that even the Governor recognizes as set forth in his executive order issued on September 21.

My strategy is based on a thorough assessment of today's insurance landscape with input from wildfire survivors, ranchers and farmers, supportive housing groups, realtors, homeowners, condo associations, new home builders, and other insurance consumers that are most effected. We are moving with urgency and deliberately based on facts, and we won't be pressured by entrenched groups seeking to defend a broken status quo that puts their interest ahead of the public's benefit.

It is clear that insurance reforms are long overdue and the current system does not address the insurance challenges of today. I am taking action to implement lasting changes that will make Californians safer through a stronger, more sustainable insurance market.

As I will discuss in greater detail in my testimony, my strategy consists of the following components: streamlining the rate application process, introducing risk management tools, such as catastrophic modeling and net-cost of reinsurance with a commitment from insurance companies to write at least 85 percent of homes and businesses in distressed areas, and of course, strengthening the FAIR Plan. Currently in the property insurance market in California, seven of the top 12 insurance groups have paused or restricted new business in the past year.

Insurance companies' actions after multiple years of major wildfires and winter storms have pushed more people to the FAIR Plan, as you notified us, Chairwoman, which has become the only option instead of the last option for many Californians. For many people who cannot obtain insurance at any price except from the California FAIR Plan, this is truly an insurance emergency. In the next slide, you'll see the FAIR Plan has grown 20 percent this year alone, now more than 330,000 residential policies. So why does this matter?

Why is this a problem? To put it simply, increasing the number of policyholders in the FAIR Plan threatens the solvency of insurance companies in a voluntary market. If the FAIR Plan experiences a massive loss and cannot pay its claims, by law, insurance companies are the ones on the hook for the unpaid FAIR Plan losses. While this assessment on insurance companies hasn't happened in nearly 30 years, it's the uncertainty that is driving insurance companies to further limit coverage to at-risk Californians.

This is why my strategy seeks to increase insurance availability while reducing the pressure on an ever-growing FAIR Plan and on California consumers. We must reverse this trend of a growing FAIR Plan if we're going to safeguard the state's insurance market as a whole. We are also stabilizing the current insurance market. We also cannot stabilize the current insurance market without recognizing the impact of climate change. Consumers are experiencing the impact of growing climate threats and outdated regulations.

California is leading nationally and globally in preparing insurance markets for our ever-changing climate. Our Department of Insurance is the first in the nation to have a branch focused on climate change that I created when I first took office in 2019, and we are working collaboratively with other state insurance departments through the National Association of Insurance Commissioners, where I cochair its first climate risk and resiliency task force.

Through those national efforts, we have moved forward on a bipartisan way to strengthen not only our oversight, but address climate change throughout our country. We are also working directly with the United Nations, and in recent climate meetings in Dubai, I met directly with other national insurance leaders who are pressing the agenda on reducing climate emissions and improving community resilience.

I was one of only three department leaders in California, along with the National Resource Agency and the Air Resources Board, to be credentialed to attend the recent climate conference in Dubai, where we announced that this spring, California will be hosting the United Nations Principles of Sustainable Insurance ever summit here in Los Angeles. Insurance is now squarely on the agenda for global climate action, which was not the case when I took office more than four years ago.

All of these efforts inform the work that we are doing here in California to create a more Sustainable Insurance Strategy. Now, I want to discuss the components of my strategy in more detail, starting with the rate application review process, which many of you have asked me over the last couple of months. So my department is experiencing the same shortage of actuaries and analysts that other companies and government agencies are experiencing since the pandemic.

We are focused on strengthening our rate regulation branch so that we can meet the current demands on rate applications that are before the department and to implement regulatory changes to improve rate filing procedures. To put this in perspective, my department is currently reviewing 95 rate and rule filings for homeowners and commercial property insurance. So my strategy is really aimed at improving all areas of the rate review process, including tightening up the procedures to expedite rate applications. This process expands beyond the department.

We expect all participants in this process, including insurance companies and interveners, to work with us towards improving our review and approval of rates, which is an essential part of how we keep insurance available for our state. For insurance companies, we intend to enforce the requirements that a complete rate application must be submitted to the department before the clock on reviewing the application begins.

Let me tell you, in the past, we have allowed insurance companies to submit their application without the complete data needed. When the market conditions are changing rapidly, as you all know, we don't have the luxury of the time for a lengthy back and forth about incomplete applications. We expect insurance companies to provide the department with the complete information upfront needed to make a determination on the requested rate, and our department will provide the rate reconciliation tool to assist them.

Similarly, we will allow third party interveners in our rate application to only raise issues that are relevant in the application. Raising unrelated or irrelevant issues only serves to slow down the process, which has a direct impact on consumers and insurance availability, especially when there are other avenues to raise these issues. Overall, I believe the goal of a more streamlined, efficient, and transparent approach will be better representing the interest of California consumers.

Another component of our strategy is to allow a new risk assessment tools that can support greater availability of insurance. For the past 30 years, the department has used historic losses as a method for estimating catastrophic adjustments in California's rate approval process. However, historic losses, as you know, do not account for the growing risk caused by climate change, nor does it take into account risk mitigation measures such as home hardening, prescribed fires, or healthy forest projects.

My department has been engaged in ongoing conversations in public workshops with the public, academia, insurance companies, and consumer groups regarding the use of catastrophic models in the rate approval process. Allowing insurance companies to use catastrophic modeling in their rate calculations will give them the ability to better anticipate future potential catastrophic losses.

The use of catastrophic models will be informed by California's goals of fairness, availability, and affordability, and I recognize that time is of the essence, as you and I have talked about many times, Chairwoman, but this is not something that can happen overnight. The process of incorporating catastrophic models into California's rate approval process is really a complicated one, as I'm quickly finding out, and involves multiple branches of my department to work together on a solution.

My legal team is working on how the introduction of catastrophic models to the rate approval process will meet the public inspection requirement set forth in the Insurance Code Section 1861.07. It is important to consider that California's public inspection requirement and the extent to which the inner workings of catastrophic models can be publicly disclosed. My climate team is working on how the department will engage with experts to strengthen our understanding of wildfire modeling factors and approaches.

My climate team is also using a data-driven process to define what will constitute a distressed area for the purpose of the meeting, an insurance company's commitment to increasing their market share in these distressed areas as we've talked about. My rate regulation team is working on the regulatory text which will set forth the models that will be used in the rate calculations in the rate application. The current rulemaking process formula is not structurally set up to accept the modeled losses.

In addition to the above work, my department is examining the use of both public and private models. Based on conversations and workshops with the public, we recognize the benefits of both private and public models that we are going to be pursuing both tracks. I look forward to introducing this regulation for public input and adoption in 2024. Let's talk about reinsurance. Reinsurance is an increasing expense incurred by insurance companies as part of the cost for writing home and business policies.

Insured natural disaster losses have increased from five to seven percent annually for the last 30 years, and the insurance companies are taking on more reinsurance to cover their increases. California is one of few states in the nation that does not allow insurance companies to recover this expense, which contributes to their decision to reduce new policies or to restrict writing to the lowest risk policies. We recently reviewed insurance companies annual climate risk disclosures made through the National Association of Insurance Commissioners.

Our 2023 analysis shows that reinsurance is an important component of how insurance companies manage that risk, enabling them to write policies despite the growing threat. This is why my department is examining how to allow insurance companies to recover their California-only net cost of reinsurance. Our goal here is for consumers to have insurance options by allowing insurance companies to recognize and recover their California-only net cost of reinsurance and letting them reflect in their rates.

This will encourage carriers to once again re-enter and expand their business in the California property market with rates that are more accurately reflecting the cost of doing business in California. Our current regulatory structure does not allow insurance companies to reflect the true cost of riding business here in California, and that is helping contribute to the current insurance availability issue.

Insurance companies will not return to California unless they're able to charge rates that are justified to cover their risk and provide the opportunity to earn a fair return. Will California see increased insurance costs in the future? The only realistic answer is yes. I have been clear that increasing availability of insurance is how we are going to protect affordability. We need to focus on getting insurance companies back to writing policies in California and to a point where they're competing again for California's business.

As the largest insurance market in the nation, California's insurance rates are far lower, on average, than many large states that face growing risk from climate change, particularly in hurricanes on the East Coast and on the Gulf Coast. But if you ask people in South Lake Tahoe, in Paradise, in Lake Arrowhead, or in other places where the FAIR Plan is going up, they are already paying more and not getting anything in return.

Those premiums increases are happening under the current regulation, which clearly is not working in those areas. Most importantly, the two risk assessment tools I have just discussed, catastrophic modeling and California-only reinsurance, are significant because to use them to set future rates, insurance companies must satisfy two commitments, and that is the important part of this understanding. The first is that they must increase writing in at least 85 percent of homes and businesses in wildfire distressed areas. The second is that they must help depopulate the FAIR Plan.

Insurance companies that cannot meet this commitment will not be able to use either catastrophic modeling or California-only reinsurance as part of their rate application. Insurance companies that fail to follow through on their commitment will have the rate reassessed by my department. Let's talk about the FAIR Plan. While we focus on shrinking the FAIR Plan, it still will be a temporary option in the short-term for many Californians, unfortunately.

We need to make improvements to the FAIR Plan so that it can serve its legislative-intended purpose of creating stability in the property insurance market while providing consumers with the best possible customer service. When I took office, one of my first actions was to undertake reforms to the FAIR Plan. The FAIR Plan had been neglected for many years under multiple insurance commissioners.

Many people did not understand why we pushed for these reforms so ardently in 2019, but now it is clear why we did that and how necessary these reforms are for Californians, especially now. Let me talk about a few of those. We increased coverage limits for the first time in two decades, going from 1.5 million to three million for residential policies and from 3.6 million for its business owners policy to 4.5 million for its commercial property policy to 20 million for both options.

We ordered the FAIR Plan to accept monthly payments and to take credit card payments. We worked with the Legislature and the Governor's Administration to allow for coverage for farm buildings. Without those changes, the problems would be worse today. Homeowners and businesses would be underinsured for hundreds of thousands, if not millions of dollars. More retirees would be unable to afford a six-month premiums that have only gone up, and more farms would be uninsured, facing catastrophic losses.

There are more changes to the FAIR Plan that are definitely needed. As part of this strategy, we'll be working to increase coverage to 20 million per building for our large homeowners associations, condo associations, farms, and other businesses. Last month, the court upheld my order that the FAIR Plan offer a more comprehensive homeowners policy, instead of forcing consumers to purchase a separate policy at an additional cost, only exacerbating the cost for the consumer.

It's time that the FAIR Plan now end their challenge and challenge of my order and work to implement it. We don't have time to waste. These actions are also included in our strategy. My department also has a goal of submitting each of the different regulatory efforts associated with the different components of the strategy by the end of 2024 as we've discussed. Each component requires careful analysis by all parts of my department, including my legal, climate, rate regulation branch and the special counsel's office.

I do not want another insurance commissioner to be back in front of you in the next five or ten years because these regulations did not stand the test of time. So let's talk about how this benefits the consumer as you all--many of you have continued to discuss with me.

Under the strategy, there is a clear benefit for consumers in areas where the FAIR Plan has become the only option. Consumers get greater insurance availability, and to reach the 85 percent target, insurance companies must take policies from the FAIR Plan using the clear, in house programs created by bills I've authored and passed by the Legislature and signed by the Governor. Thank you for your support of these bills.

This is groundbreaking because currently there are no requirement under Prop 103 or any law for insurance companies to write policies in an area, a limit that was enforced in court under former Insurance Commissioner Garamendi. In the next slide, the Legislature's support is essential for our ongoing efforts. Your groundbreaking budget investments, along with Governor Newsom's Administration in wildfire safety, are transforming our existing communities. My department is finalizing my Safer from Wildfires regulation discounts which will apply the benefits of wildfire safety spending.

Your support for additional staff and support for our department in the recently signed budget will be critical in implementing these crucial regulatory changes. Your continued involvement and partnership are essential to support investments in wildfire safety, to work with our federal partners to better manage our federal lands, and increase funding for home hardening and community grants administered by the State of California. Risk reduction is central to the safety and long-term sustainability of our insurance market.

The conversations we've had with recent legislative session as we develop this strategy show that we are seeing the problem very clearly and you share in my need for urgency. I will continue to partner with all those who want to work constructively with us towards real solutions, and I look forward to continuing to work with you to identify innovative ways to create a more resilient market for our state, more resilient communities to withstand climate change. Thank you and appreciate your time.

Thank you, Insurance Commissioner Lara. At this point, I'd like to see if any of my colleagues would like to make a statement before we go into Q&A. Okay. All right. Do you want to start? Do you have a question?

So, just so I understand better why, I think you said you hope to have these elements in place by December 24. Can you just walk me through why does it take that long? Are we talking about issuing rules and regulations, and is there anything the legislature can do to assist in expediting that process?

Thank you. The legislature has already taken a very bold step in giving us the budget. We need to hire the analyst that we need in our department. We've had record numbers of folks since the pandemic retired. And like I said earlier in my statement before you walked in, we are still dealing with over 95 different rate filings that a limited group of analysts are working on and actuaries. So, this is allowing us to move quickly and hire folks.

And the fact is that it takes three branches within our department to really look at these regulations. And I know this was a point of, and rightfully so, a point of conversation with the legislature. We need to get these done as quickly as possible. So, like I said, our legal team is working on the introduction of these catastrophic models.

Our climate team is looking at how we're going to engage with experts of how we're going to use these models, making sure that we have private/public options for folks. And my rate branch is working on the regulatory text that will set forth how the models are going to be used. And once we finish working on those regs, then we have to send them to the office of administrative law so that they can review them and then hopefully approve them timely.

We've been working with the Governor's office to make sure that once we get these done by 2024, or hopefully before that, they're quickly implemented so that we can start working on the rate files that then the companies have to come in, submit with all the new regulation so that we can try to get those as quickly as possible.

So we need to hire, we need to finish these regulations before 2024, have the Office of Administrative Law approve them, and then insurance companies come in with the new updated ray files. Hopefully, I have fully staffed folks by that time. As we're quickly, we just had a job fair here in Pasadena and approve those as quickly as possible so that we can start seeing the relief.

Okay. I just hope that we can get the regs drafted sooner than later because I don't think it would be that hard. I think they're simple, and I think people need to understand all the regs do is allow the insurers to seek reimbursement for reinsurance and to use modeling. It doesn't approve it. You're still going to review and approve that the regs simply allow them to consider these additional things. So, I'm hoping we can get the regs out sooner or later. I don't think they need to be that complicated.

And I hope people understand that we're talking about here is not just helping the insurance market, it's to help the consumer. Because the only thing worse than high insurance rates is having no insurance.

Correct.

And I'm hearing that from a lot of people. It's devastating to builders, it's devastating to all kinds of stuff. So I think we have the right destination. You've got it locked in. I just want to put the pedal to the metal and get there faster. And if you have to speed and break some traffic codes, I'm okay with that. Just get there. It's for a good cause.

And then my other big question, and I'll give it back to the Chairwoman and see if there's anything else comes up: under Prop 103, are there different topics? Are we doing all the questions right now?

Whatever one? Okay.

All right. Just making sure. Under Prop 103, I think there's a huge flaw in the way it was written. The creation of this consumer watchdog group - that is allowed to intervene and delay, obstruct, and add cost to the process - doesn't make sense to me. You are the consumer watchdog. You are elected by the majority of voters in the state. You look out for the consumer.

So I know you have suggested a desire to improve the transparency of the intervener process, but my question is, why not support eliminating the intervener process? And I know that have to go to the voters, but is that something that your agency has considered? Is that something you would take a look at?

You know, interveners are very unique to California, and I'll tell you, they play a very important role. What we need to do is make sure that it's not just one organization that's doing the intervening, that we actually allow for diverse interveners; people that come from these communities that want to understand the rate process.

And this is why I think we need to be much more transparent with not only who these interveners are but also in the regulatory process is allowing the department to forbid these interveners from holding us hostage, from not cutting and pasting the concerns that the departments brought, and then say they're intervening with the same issues. So, that is no longer going to be the case. We're going to make sure that if you're going to intervene: one, you're ready to intervene-

- as Prop103 says, day one, and that you're going to have to bring issues that are related to the rate file, not these other issues, that there's other venues to be able to adjudicate those. And you can no longer just bring up the same issues that the department, that our insurance experts have brought in to be able to delay the process. We can't delay this process any further.

But I have to tell you, insurers, the interveners play an important process, but we need to diversify and make sure that those interveners come from the actual communities that are suffering, that are diverse, and that they also feel that they can engage with the department. Back in the day, we had other interveners that were also engaging.

So we're looking at other ways to streamline that to make sure that the department is no longer held hostage and that we bring the power back to the actual, as you say, the insurance experts, which are the men and women who work for the Department of Insurance.

Yeah. And like I said, I see you as the consumer watchdog. That's your job. Thank you. All right. Thank you, Madam Chair.

If someone would?

And thank you very much, Commissioner Lara, for being here today. I appreciate the steps you're taking. I truly, truly do. So I have some questions. I live in an area right now that is very difficult to get insurance. The entire zip code is almost impossible to get homeowners insurance. An entire zip code, which is the city that I live in and the surrounding areas.

So I'm very interested in, when you talk about insuring 85% of homes and businesses in distressed areas, what is that going to look like because my area right there is a distressed area. What I worry about is - and I think about this from another perspective sometimes - we used to hear for years that, well, we've got 95% adoption of broadband, but not 95% adoption in every region. And consequently, my area has the lowest adoption of broadband in any area of the state.

Yet that 95% number sounds great unless you live in my area, and it's closer to 80%. So, how do we ensure that companies are not cherry-picking and not insuring properties? Because it's easier to do than it is to actually insure in some areas. I guess that's my first question. What is that going to look like? Because it'd be so easy to pick 85% and then leave entire communities out of the process, and they're no better off.

And I know we've had this conversation, Senator Wood; your area is exactly the area that we're thinking about as being prioritized as a wildfire-distressed area. And that is where we're seeing that we need, rapid need. And what we've done is, especially now that we have this clearinghouse of homes that, as in your community, have done so much work to mitigate those properties, to harden those properties. There's a list now that we are going to be the first to be depopulated off the fair plan.

And this is why this agreement is historic. Because when at first we approached the companies to say, "Hey, what about you commit to 85% of your new businesses of expanding your business in these distressed areas?" They were like, "No." And so we engaged with them about, "If you want to use these tools, you have to commit." And we finally, after negotiating, they agreed. And this is why this is such an important agreement.

Now, the definition of wildfire distress areas is going to go through the public process to make sure that we're being as expansive as we can. Because the other issue is, it's not just the policies are at the fair plan; because there's other communities that are also within the fair plan that are considered distress. But I commit to you that the whole reason we were pushing the insurance companies to prioritize these areas is your district in mind.

I've been there many times, and I know how devastating it is to your communities and to your local economy. As the FAIR plan grows, it just increases that uncertainty for your communities.

And so I'm putting myself on the record that it is your communities that we seek to prioritize, to make sure that we get them off the FAIR plan as quickly as possible, get them in the emitted market, and get insurance companies to once again compete for the business of folks in your district and throughout Northern California where we're seeing this being really a big issue.

I know that my constituents, I won't speak for every one of them, but I'll speak for myself and some others that I know: no one wants to pay more for anything, right? Butter, eggs, milk, whatever. Nobody wants to pay more. But people will pay more for the certainty of having insurance versus not having insurance. And that's why it is still baffling to me that companies will take an urban core of a small city and deem that uninsurable.

I don't understand why that is at a wildfire risk. I recognize what happened in the Tubbs' fire. That was a very different animal. But it is really disturbing to me that this one-size paintbrush approach by some companies is really affecting people's lives. It's affecting the real estate market. It's affecting people's ability to move on in their life. And it is an emergency for some of us, and I know it's for others as well. So thank you.

I appreciate that. You mentioned, and this is kind of baffling to me, incomplete applications. Why would an insurance company not give you a complete application, knowing that there's always back and forth? Explain that to me because I don't understand. I would never give you an incomplete application because I want the process to go faster.

Exactly. And so what we discovered when I came in was that this was just part of the course: submit an incomplete application, have it start with the analyst, and then you're working back and forth, which also creates this backlog and really just exacerbates the time that you need. And so then we started hearing from insurance companies, well, what is happening with my rate application? I could tell you that 80% of the time, talking to the analyst was, well, "We still haven't received information."

We're waiting on them to respond to the information that we need. And so part of the negotiation was, well, "We're no longer going to allow you to submit an incomplete application." I'll tell you, as a new insurance commissioner back in 2019, I'm like, "Okay, so we've approved these rates. That's it. We're good." No. The immediate time that an insurance company, their rate application was approved, they submitted another one immediately.

And more than often, it was incomplete, creating this animosity once again with our department, which really has no time to start guessing these numbers. And so this is why this is also a key component that both parties came together and said, "We're no longer doing playing this game. We're going to only accept complete applications so that we can move quickly."

Because what's happening, as, you know, really want your district, as you really poignantly talked about, the domino effect that happens, you can't find insurance, you can't sell your home, lowers property values, then guess what: the local government doesn't have the resources to actually pay for firefighter. Right. And so it's this evil cycle that happens. So what we're doing now is making sure that these complete applications are done, because also, the time it takes to approve.

By the time we're finishing this back and forth, the risk is going up, but the rate is still staying flat because we're still negotiating a complete application. So we're never going to close that protection gap, and we're never going to get to be able to have the adequate risk being reflected in these rates. And that's why we're seeing insurance companies come over and over and over again asking for a rate filing because the risk keeps going high, and we're not closing that as quickly as possible.

So this is one way that our department came in and said, "We can't be playing these games anymore. The risk is happening quickly. We need to get through these files. So, you also need to commit to giving us a complete file." So that's the history around why we decided this was such an important component to our strategy. Thank you.

A couple more questions, if that's okay, Madam Chair? Okay. Regarding the cap models, obviously, this is done in other states, and surely some are doing this pretty well. Are we reinventing the wheel? Are we looking at other states and trying to incorporate what's working with them rather than starting from scratch and creating our own cap model program?

Yeah. As you know, cap models have been around for a while, and they're very different; they're more reliable around flooding. You could tell when there's atmospheric river coming, you know, how much water is going to get dumped and so forth. It's very new around wildfire. As you know, a shift in the wind can determine the outcome of the fire. And so there is science out there that's trying to figure out how do we predict these fires and where we do this modeling.

Now, for us in the department, of course, we have very thorough consumer protections, and of course, Prop 103 allows us to really make sure that we're protecting the consumer. Some of the thoughts back in the day were, well, "If we allow these models without us being able to really understand how they're going to reflect the risk," is, "are they just going to be used to discriminate who gets insurance and who doesn't?"

So how do we create not only regulation but the expertise within the department to be able to verify these models and what they're doing, and how they're interacting with the specific California landscape? So, one thing is clear: we can no longer rely on historical data to determine the risk. Right. So we eliminated that immediately. And now we're looking and working with our counterparts throughout other states, in particular the western half of the country, who allow for some of these models to get in places.

How are they using them? How are they protecting consumers? How do we make sure that we are creating some sort of public model so that we can use that as a benchmark? Right. That's a goal for us, too.

And so these are all new techniques that we're using and that we're going to incorporate within our department to make sure that we're verifying these models, that we're understanding what type of data is being fed in the models so that we're not inadvertently hurting consumers, but that we're also using technology also, as you know, to determine and really boil down to the home to have people take credit or have the insurance company give people credit for the home hardening, which currently does not exist.

So you're a homeowner that has spent thousands of dollars hardening your home right now. You're not getting any credit for that, and your rate really doesn't reflect the work that you've done on your property. So that was another win for us, for consumers in these negotiations is that insurance companies are now going to have to take into account their home hardening coupled with our Safer From Wildfires regulation, that's going to give them a discount for doing that work.

And so we're starting to use insurance to perpetuate good behavior and really recognizing that and giving consumers a discount for that, rightfully so. So, again, it's all about bringing down the risk. You bring down the risk, you get insurers' writing in these communities, and once again, I saw, I went around in a massive circle. But this is why these models become important, and we can't shy away from technology anymore. So, we have to get California back to the forefront of using these models.

Thank you. And I will say that some people are actually doing a lot of work to reduce risk and are still being canceled.

Yeah. Which is why-

Incredibly discouraging.

Yeah, which is why these models are important. So the insurance company can actually go in and look and look at the home hiding that's taking place so that they reconsider these properties. Right now, you get sifted through a satellite image that really doesn't look at the actual home. And so they're just nonrenewing swaths of people. Now the department is going to be able to actually go in as well and look at," Wait, why is this happening? These homes are hardened. These homes meet the threshold.

What is happening?" So now we're going to be able actually to have that data ourselves and actually share that data with local governments and with you all so that we're all working under the same kind of information, which is important that we currently don't have.

A couple more, and then the last one was at - So obviously, and I understand the dynamics of a sort of California-only catastrophic modeling. We are unique, there are unique challenges here. And just. I won't belabor the point so much, but I'm more interested in the mechanics of we're not going to have to create our own technology. There's got to be other things that we can use and put our own data into. That's really the point.

On the models, absolutely. Our staff are looking at all the models that are available. We're actually partnering with different UCs and other members of academia to make sure that we're all assessing all these different models, again showing that we know what the data is going in that's reflecting the California topography landscape, the Santana winds, for example. So we're working with existing modelers as we're working on getting to do a public model one day so that we can use as a benchmark.

And with regards to reinsurance, now, my understanding is that reinsurance market, in general, is more global.

Absolutely.

And so we're looking at a California-only reinsurance. Is that potentially more expensive initially, or is it going to level out over time? What is the potential? Or do we even know at this point? Because...

It's a great question. As you know, reinsurance is what insurance companies buy to cover their risk. And with climate change all over the world, reinsurers; it's getting much more expensive. So, as we met with insurance companies and insurance groups, that was one of the first things they pointed out. One is the inflation, and two is the reinsurance cost.

And as I mentioned before, AM Best have downgraded 10 of our 12 insurance companies, not because of the risk around the country, just in the risk that they have in California. And so again, pointing out to the amount of reinsurance that they need to take and the cost, reinsurance is recalculated every year, and it is tied to the global market.

So not only am I now tracking fires and floods in California, but I'm also looking at what's happening in Europe, Asia and, Africa, Australia because it's all tied to this market. Now, the conversation I've had with reinsurers is: look, as Californians and the conversations I've had with consumers are we're okay paying for our risk. We know that California has multiple climate catastrophes and the potential for more as we're now looking at extreme heat, sea level rise, and, of course, inland and coastal flooding.

So one of the things we've been having conversations have - let me just back up -the reason why we haven't allowed, as I understand, for reinsurance in the past is because we didn't want to pay for what's happening in Florida and Texas and Illinois and New York. But that is no longer sustainable for the largest insurance market in the country, where I have my counterparts in other states saying we're essentially subsidizing California by not allowing you all to also include your rates. So I met them halfway.

I talked to the reinsurers and said, given that we're the largest market in the country, fourth in the world, is there a formula that we can work on that is California-only reinsurance? This is going to be the toughest part for us as part of this agreement. They've all come back and said there's absolutely something we can do that we're going to test out.

Again, this is going to be done through a public forum to make sure that we're having these discussions of what a formula would look like that takes into account California-only reinsurance because we need to take responsibility for what's happening to us in California and pay for that appropriate price. That is going to be, I guarantee you that one of the toughest things that we do, and we're committed to getting it done by 2024 in December. And so it's all hands on deck for us.

Thank you. And then the final one. It may be the hardest question of all, and I apologize for that, but not really. What do we tell our constituents, the people that are being canceled now being forced onto the fair plan? I know what I can tell them. I have more knowledge; these committee members have more knowledge than the average person, obviously, but they're feeling this. They want to know when are we potentially going to see some relief, a range of period. Is it a year?

Is it two years? Is it five years? Because they have to plan their lives out, too.

Absolutely. And this is the number one question I get from every single town hall that I've had in every county in California. It's, one: I want certainty. So if I'm going to pay more, I want to be able to budget that and make sure that I can have my business and my home covered. Two: in the fair plan, I'm paying more and getting less, so I need to get out as quickly as possible. And three: when are we going to see rates stabilize?

So I say two things. One, you're going to start seeing, hopefully by the beginning of next year, some of these insurance companies hopefully starting to write new business as we're expediting and really working hard to finish these rate applications as more people are coming in in the department to help us. Two, you're going to see that just the market signal of us working on these two components is already sending the signal that California is going to modernize, finally, their market. Nobody wants to leave California.

We're the largest market. But it's become to the point because it's so archaic with these rules that people are now, back in the day when, yeah, it was one catastrophe and so forth, but now when you have multiple catastrophes, particularly since 2017, and then you have an increasing amount of reinsurance to cover the catastrophic losses we're having around the world and the fact that we were prohibiting these things and inflation. Right.

The cost has gone up for everything, which many of the insurance companies weren't accounting for. And so I'll tell your constituents that hopefully, we start seeing some relief by next year as we look at these rates and that, I would say, hopefully, 2025, we start seeing some sort of the market fixing itself. And so that's definitely my hope.

Well, thank you very much. I appreciate this. And I will reiterate what Vice Chair Essayli said: As you move forward if there are things the legislature can do to help expedite this process, I think you have an eager group here that would be willing to step in as much as we can.

We will. And we're in constant contact with our Chairwoman, Lisa Calderon, to make sure that if there's ways we can move quicker, that we will.

So I just have a couple of questions, Commissioner. Again, thank you for being here today. We greatly appreciate it. So, if the California-only cost of reinsurance is possible, do you have any idea of a timeline of how that might unfold?

The goal is for all these changes, Assemblywoman, as we were negotiating through the legislature, is that this gets all of these regs get done by the end of December 2024. That's our ultimate deadline. We've had some indication from our staff that some of these regulations can get done quicker, and we can submit those to OAL. And they also know that we're trying to get this done by 2024 in December.

So you're going to see as soon as we're done with the regulation, with the public process, that we get input as rightfully by law. We have to adhere to all these different open public meetings - which are a good thing - that as we wrap those up, we submit those as quickly as possible. Everybody in my department knows that we've committed to the legislature, to the public, to get this done by December 2024. So this component also is part of that.

Okay, thank you. And then you mentioned interveners' process, and that is such an important part of this process. But you said something that kind of piqued my interest about being held hostage by interveners during the process. Can you talk a little bit about that and maybe give me an example?

Well, I would say in the past, I'm very proud of the fact that our special counsel is working very diligently to make sure that we hold everybody accountable, right? That if you're an insurance company and you have an uncompleted rate filing, we hold you to account that if you're an intervener and you want to intervene, that means you're ready to intervene on day one.

And we are no longer going to allow you to just perpetually hold this rate filing until you're ready to negotiate and be part of the three-party process, which is important, right? Because we want interveners to be part of the process, but we can't have the department held hostage to the point where the rate, by the time it's approved, it no longer meets the appropriate risk, which we've seen happen year after year after year.

And so we need to tighten up that process, which we're committed to doing. Again, this was another part of the strategy that came from my department specifically that said, "Wait a minute, we need to take control back." As a Department, we are the experts, and if an intervener is ready to intervene in a file, that they're ready day one, and that we start that important process.

If you're an insurance company that submits a ray file, that better be complete because we're not going to waste our time anymore. We were getting essentially held hostage by the intervener and by the insurance company with these incomplete rate files. And then, by the way, who would get beat up in the media: it was the Department of Insurance for not approving these rate files or for taking forever. So now we are creating a very tight and deliberative process.

And most importantly, what you were seeing with some of the interveners was they would just simply copy and paste already our objections and saying," Okay, well, now these are our objections as well." No, if our experts in the department have identified these objections, then we're going to negotiate with the insurance companies, and the intervener has to bring new objections so that we're all being fair in the process.

Thank you. Do you have any questions?

Maybe for all our education, how does the intervener get paid?

I'm going to have staff jump in on this. This is the one thing I do not want to mess up.

No, I think it's important that the public understands when we say intervener. It's one law firm that drafted Prop 103 that's created a permanent source of income for them in perpetuity.

So, Member, I'll have Lucy from my special counsel, who's our intervener expert, explain to you how they get paid.

Thank you. Yeah, please tell us how they get paid.

So, good afternoon, Vice Chair. So Proposition 103 allows the intervener process, and what happens is after a petition for intervention is filed and it gets granted, they participate in the process, and in the end of it, they file a request for compensation. So long as they've shown.

I'm sorry, could you speak this a little bit louder?

Oh, I'm sorry.

Thank you.

So once an intervener participates in the process of intervention and participates in a rate application, at the end of that process, they have a right to file a request for compensation. To the extent that they have shown that they've made a substantial contribution to the rate application, then they submit the request for compensation, and they're paid for that.

Who pays them?

That is paid for by the insurance companies.

Okay. So it's another cost that's added to the insurance companies. And who determines if they provided value?

Is it a judge or...

The administrative law judge.

The administrative law judge. And often are these things settled, or do they always go to a determination?

What do you mean by settled? Usually, the requests are supported to the extent that additional information is needed. The AOJ will request additional information, and so they eventually reach a resolution in terms of either the amount is just that request is upheld or a separate amount is given.

Okay. And when you say interveners, you really just mean intervener. There's only one law firm that's allowed to intervene, isn't that correct?

Well, usually, there's only one intervener who primarily intervenes in rate filings before the department.

Yeah, they're the only ones allowed to, I guess. Just my last question to the Commissioner. Do you think you need an intervener to help you do your job?

I think interveners play a very pivotal role, especially when we actually work together to address a specific rate file that often we do; we work well with them. The problem is that we need to diversify interveners. It just can't be 80 or 90% of interveners just be one entity.

It is an important process that I proudly defend, but I think we need to do a better job of why are other nonprofits not participating in the process, especially for us, people that look like you and I, people that come from our working-class communities that are experiencing the hardship? And so we're looking at also, how do we incentivize other interveners to be part of the process that play an important role?

And so it shouldn't just be one organization, and it just happens to be the organization that wrote the rules that makes millions off of it that, as you rightfully point out, eventually gets passed on also to the consumer.

Right. So you're looking at some regs to address this. And would those have to go back to the voters?

We're looking at what those options are as well.

Okay, well, let us know. I know for me, I would support those.

Thank you.

Assembly Member Valencia?

Thank you, Madam Chair. And good afternoon, Commissioner. Hope all is well with you, and the holidays are treating you well.

Thank you.

I think we also need to ask just a very frank question about the state that we're in and what's to be expected in this transition to a much better insurance climate here in the state of California. In your assessment, do you think that rates will increase? Do you think the situation will worsen moving forward? And if so, have we discussed or planned any potential softening for consumers?

Whether it's payment plan systems or a tiered implementation of these new rates?

Right.

Anything along those lines?

Yeah. Thank you, Assembly Member Valencia. Your questions well taken. I'll tell you that I can confidently say that we're not moving in the direction of Florida, for example. And by the way, I don't like to compare us to other states because I know how hard it is for my fellow insurance commissioners in those states, Florida, Texas, Hawaii, who just surpassed us with the largest fires. We're all going through this as a country and the territories.

But I can tell you that this agreement, and I have to also note, and I want to thank my staff for the fact that the conversations that we've had with the industry would have never happened in the past. We continue to be vilified because we're actually having conversations with the entity that we regulate, which makes no sense to me. We should be talking to the entity that we regulate.

And so this is why this agreement came about, because, look, you told us what you needed to stay in business in California. Again, I don't think there's one insurance company that will tell you they want to leave the largest insurance market in the country, fourth in the world.

But we also need some guarantees for the consumer that we're going to be able to find insurance in our wildfire distress areas and that we're going to pay for our risk that we take on for living in the state. And Prop 103 gives us the tools and the authority to make sure that we get that done. That is the beauty about that proposition. The other thing is that we need to modernize.

We can't operate under outdated regulations that no longer reflect the risk that we're living in. And so I'll tell you that just even the signals that we're sending that we're going to make some massive changes that we need to make is already having very positive changes in the outlook of insurance companies. Looking at us again, you're going to see next year, hopefully, some balancing out of the market for the time being.

As I said earlier, I'm not going to lie, it's going to still be expensive because we're never going to get to affordability assemblymember if we don't have availability, if insurance companies keep exiting the market or contracting their footprint, we're never going to get to affordability. So that is the first action of this plan is to get insurers to write back, to write in these communities.

And so it's going to be tough, I want to say, for the next couple of months, but hopefully, you're going to start seeing the market start stabilizing itself. I know it's not what you want to hear, but I don't want to sugarcoat that. We are living in unprecedented times.

I actually appreciate that candid response, and to your point earlier about transparency and ensuring that we're having public meetings throughout this whole process, I think it's of the utmost importance that we're at least forward going into this next phase so that folks understand that it is going to be difficult and there is no other way around this, at least nothing that we're aware of at this time. So thank you for that.

Thank you.

Thank you. I guess I would expect that things actually may get worse before they get better. I hope not. But if I knew that as we go forward and that there is sort of light at the end of the horizon, that it would be worth it to know that there may be some growing pains, I guess is what I'm thinking about.

I will tell you that my biggest fear is that we have another 2017 or 2018.

Yeah, mine too.

That unravels this agreement. But I'll tell you, I don't think it's going to get worse as we know that in business, people need certainty, and they need to know that we're moving in the right direction. And I can't tell you how that's even the conversations we're having have improved our opportunity to be able to keep and maintain insurance growing. And you can ask the insurance companies yourself that these changes that they've been requesting for years are finally going to happen.

That at least gives them an opportunity to say, "Hey, reinsurance company. Look at what's happening in California. How you schedule the amount of growth you're going to take." And at least that is enough to start saying, okay, we can start looking again at how we not only reinvest in California, but how we grow. And so I'm not that pessimistic yet, but I also know that you live in these communities where you hear this every single day. And so I appreciate that perspective.

And then just don't; if you said it and I missed it, I apologize because Mr. Sally asked if we have to go back to the voters to change the intervener process. The idea that a single entity really controls this, I can't imagine they're going to want to give up that book of business willingly as you go to reform the process to make it more fair and more transparent for people. So, if I missed it, I apologize.

But do you see that the department can actually create regulations to open that up to a broader, more representative group rather than a single entity, as we see now?

Yeah, it's all going to really depend on how we move and what the areas of reforms that we're looking at. But in general, Lucy Wang, by the way, just for the record, my special counsel.

I think that's an interesting question. I don't think we need to go back to the voters with regard to the intervener process. I think what the Commissioner speaks of in terms of motivating and creating a more diverse group of interveners, that's something that the department can do within its existing authority now.

And one of the reforms that we've already implemented, just so you all know, is that we're being very much more transparent with who these interveners are. How much money have they collected? Who are they raising money from? And that's already available, which, by the way, was not available in, before through our website. So we are making that much more available for all of you.

You all have asked, many of your colleagues have asked me to make that available, and so we've made that available through our website in a much easier way.

Good afternoon. Michael Martinez, Chief Deputy Commissioner and I just wanted to add to what the Commissioner and my colleague had stated is that absolutely, under existing law, we can continue to work to expand the intervener process. The Department actually has previously outreached to a variety of nonprofit organizations to encourage them to become interveners. And we do invite individual jewels, too.

What has been one major challenge is that to be an intervener in these rate violence, as you can imagine, there's a lot of detail, there's a lot of work that has to be done by analysts as well as actuaries.

And a lot of that staffing, if you will, does entail a significant amount of investment that an organization needs to put up and put into in order to then, as we talked about earlier in our responses, the back and forth here with the Committee is that then they have to then apply for compensation, which they would in turn go through a major process.

So in other words, they have to go out, find the staff, whether in house or contract, expend the resources upfront to then perhaps maybe not get the compensation to in turn pay back those staff. So there's a significant amount of investment that must go in that we have found to be one of the major challenges in order for individuals, individual organizations to get more involved in the intervener process.

So it sounds a little like an attorney taking a case on a contingency.

Exactly, yes, fair point.

So those are kind of the things that we're looking at reforming. How do we reform the process to allow to give some of these nonprofits upfront the resources they need to be able to have the resources to actually intervene and be part of the process.

If I may ask, deputy Commissioner, what you were describing is a process to have more, let's call them intervener firms. Right. So it's not just monopoly, and I think that's good. There should be diversity in firms, so it's not one person making it all. But I'll make sure we don't want more people to intervene. We just want more diversity in the type of intervener. So there are going to be other reforms in there. I just don't want us to encourage more interventions.

We don't need more interventions. Yeah, I know. We don't want like a team of firms intervening.

No, the interveners play a very critical and important process, especially on rate files that are very complicated and that we often may not agree with the insurance company, and we team up with the intervener, often against an insurance company. Again, if we have strict timelines and intervention so that we're all working under the same schedule. That still cuts the time.

So we're not diminishing the role of the interveners, but we can no longer just have the intervener have an open date, and until they're ready to negotiate that, then we have the three party negotiator. Oftentimes we agree with the intervener, but they need to be ready to intervene as soon as day one as Prop.103 states.

So I want to see more interveners with this expedited calendar that we have and the rules that internally we want to change because we want to see interveners from the communities that are being affected.

So if there's multiple interveners, are you envisioning that then the insurance Commission would pick who is going to be the intervener, or would there be some process to.

Good question.

To pick one.

That's a really good question. I mean, that's a problem we'd like to have. We haven't seen it. I mean, most of the time when they file a petition intervene, it has to be grounded in a basis. They have to explain why they want to intervene. So if people just want to be heard, that's not really the basis for why the petition would be granted. So I can't think of a scenario where that would happen.

But if we really had that much interest in it at the Department, we always welcome that.

I guess I'm confused because I want less intervention, but it sounds like you guys like the interveners. But I guess from my standpoint, what do the interveners do that you can't do from your Department?

Well, there's actually, it's a twofold process. You're thinking about intervention only in the area of rate applications. Interveners also play a role when the Department conducts market conduct exams and issue reports of non compliance. And interveners play a role there in providing input. So it's valuable, I think, that the Commissioner's goals of transparency and public input are well supported by having the process of intervention. It's just making sure that everyone is ready to participate from day one.

Yeah, my comments were directed at the rate increases. I wasn't aware of the other areas. Very interesting. Thank you.

I have one last question. You mentioned that you don't like to compare California's insurance market to any other states, but could you talk a little bit about how California's insurance rates compare to some of the other states?

That's a great question, assemblywoman, and I don't like to play these politics of California against Texas or Florida, as we're all working as insurance commissioners. To solve our markets, as you know now with reinsurance, as you understand what we need Florida to succeed, we need Texas to succeed. We need New York, Hawaii.

But even as we're working on these rate files, even after the rate files that have been approved over the years, by the way, California is still roughly in the middle, and that is good for the large state that we are. And I think that's a good place to be in. But I know that that is not something that when we talk to our consumers, they want to hear. Rates are changing rapidly.

We're going to try to make sure that we're paying again for the amount of risk of where we live and who we are as a state and the catastrophes that we have as a state. And so I think we have to have that sobering discussion with ourselves as Californians. But even then, as I tell you, the conversations I've had with people who have lost their home, who are in the fair plan, they also want certainty.

If they're going to insure their home, they want to make sure that, one, they're not going to get dropped and that their price is not going to skyrocket the next year. And so this is why we're making these transformational changes to provide certainty in the market so that people can budget. And I'll tell you, people, even in Assembly woods district, they know, they're like, I know where I live. I'm paying the price for living in one of the most beautiful parts of our state.

But I also want some certainty so that I'm able to budget and be able to have some certainty for our family. And that's what industry wants as well, which they haven't had because of these archaic rules that we have and because of Department not streamlining this rate process that can take years to approve you.

Thanks. I think the longer we sit here, the more things we think of. So that's a dangerous thing. Probably. But this is something I have thought about for a while. And I don't even know that you're the right people to ask, but I'm going to ask because we have a California earthquake authority for earthquake insurance. Has there been any discussion about a California fire insurance authority as a way? Because that seems to be right now anyway, although careful what you wish for.

We could have climate change authority. We could have a whole variety of different things here, but that seems to be, for lack of a better word, the flashpoint right now.

That's a great question, as I remember, and then one that many consumers ask us at town halls, why can't we create a public agency? And I'll tell you, and I've been very blunt about this, I do not want government running an insurance company. After the Northridge earthquake here in Southern California, the Legislature at the time came in to try to force insurance companies to write in this community now, as you know, you know more than not, insurance companies are not utilities.

They're not obligated by law to write, no matter what anybody tells you. And this has been already adjudicated in law, again with former insurance Commissioner Kalra Mendy. And so what happened? We were left with government trying to create the California earthquake Authority. That's going to be the next thing that, the next thing that I need to work on so that we can modernize the California earthquake Authority.

The rates are still high, the coverage is still not appropriate, even though they have an amazing mitigation program, bar none, like anybody else. But the uptake is only 2%. Only 2% of Californians have an earthquake policy. So in the East Coast, same thing happened with hurricanes. We were left now with the National Flood Insurance program, which yet still hasn't been modernized by Congress and is still heavily does not meet the needs.

And that's one of the big contentions that we have with the Federal Government, is trying to modernize and give adequate rates so that we can penetrate the market. Right? Over the last 40 years, every single county in California has been under a Governor declared flood emergency. As we have a beautiful sunny day today, that is also another thing we have to worry about. You saw what happened in the community in Pajaro.

You see what happens in Imperial beach, in San Diego, the king Tad comes in and pretty much floods the entire downtown there. And we're working on climate solutions to that. So this is why the one thing we can do as consumers, as legislators, as the industry, is to bring down the risk. We all agree that that's what we need to do to keep insurers riding in these communities.

And that's why the investments you all have made record investments with the regulations that we've implemented to incentivize consumers to bring down the risk, is the solution. And it's going to send the market signals to the insurance companies that we're all working on bringing this risk.

One, we're all operating under the same rules, that we know what the timelines are going to be for the Department, get the rate you need intervened or not, that there's some certainty of when this is going to happen, and that provides some stability in the market. That we haven't had in years. And so, again, we want to be able to.

zero, and the other thing, too, that I often check in, as I've talked to my staff, what would happen if we create a know public insurance program where we put the riskiest homes in one risk pool? We would never have. Even in California, especially as we're going in to this budget, we would never have the amount of money to cover those catastrophic losses.

This is why you need multiple insurance companies covering these areas, allowing them to democratize those rates so that we're all, as Californians, paying the rates that we adequately need to cover ourselves. Because, as you all know, Assembly Member, in the beginning of these fires, Southern California Members were like, well, that's a Northern California issue. Well, that quickly changed with fires in LA, Riverside and San Diego. So we're all in this together.

This allows the insurance Commissioner, myself, and those in the future to be able to negotiate those rates. Looking at the insurance company's overall portfolio, and if that means those of us in downtown Los Angeles not take such a big decrease and allow your constituents to not have such a big increase. We work on that every day in the Department through our analysts, our insurance experts, and our actuaries as they're reviewing these files.

Anna, if you want to, just wanted to add, I absolutely agree with what Commissioner Lada had said. I am his proud designee on the governing board for the California earthquake Authority since 2019. And I would say the CEA is one of the world's largest purchasers of reinsurance globally.

And absolutely, as what the Commissioner had said, if we were to lift and shift the state's largest, most high risk wildfire in one entity, that would have tremendous financial solvency issues as what we have been having, the CEA staff, the board has directed CEA staff to have very active, engaged conversations publicly. We've had several meetings, stakeholder meetings, because actually, the CEA is actually having sustainability challenges in regard to financial solvency because of reinsurance costs and global inflation.

Because as we get more and more attractive in regards to individuals coming to the CA, as you know, for insurance, we do need to have the money there ready to go if and when claims, when a consumer requests or puts in a claim. So we are right now in real time having these sustainability challenges. So if we're looking at just, and I would like to add that we are about a little north of 10% of California homes do have a CEA policy, yet, that's 10%.

And if we do look at having more homes north of 10% in an authority, a wildfire authority. Again, sustainability challenges the years that would probably take to get it up and running. And not to mention again, the potential rate shock that individuals would get because there would be such a high concentration of the riskiest properties.

And so, as what Vice Chair had stated, we do have the fair plan as the insurance of last resort with the Commissioner's sustainable insurance strategy that we do have a plan to get the fair plan back to be no longer the insurer of first resort for many, but back to the insurance insurer of last resort. Thank you.

I stand corrected. 10%. I'll listen to staff.

Okay. Would you like to make some closing comments?

I'll just close by saying I really appreciate this dialogue today. I thank the Chairwoman for having this hearing and the Commissioner for being available and your staff. It's so important that we have these conversations and policy discussions in a public forum so the public can see the oversight process. And we are separate branches of government. We have a separate role than you do, and it's important that we respect those and that we each play our job.

I think far too often these conversations are held in dark rooms. They used to be smoke filled dark rooms, but we don't smoke anymore. So just dark rooms somewhere. So I just really appreciate the transparency and the discussion, and I hope that you guys continue with the good work and where appropriate, we can assist or the Legislature can do something. Please bring those suggestions to us because this is a huge priority. It's not exciting. The media doesn't really like to cover it, but it's so important.

And surprisingly, I'm getting more, unsurprisingly, more and more constituents who are bringing up insurance issues to me, and we just all want it fixed. So we appreciate your willingness to work hard on this.

Thank you.

Would you like to make any closing statement?

No, just thank you again, thank you for your time. I think for those Californians that have lost our home, they've had to become insurance experts and face insurance companies on their own until we started to really step in. I'm just proud of the work that our team has done and the work that we've done to take our Department out of Sacramento, out of Los Angeles and into the communities many of you have. We've been to your districts to have those conversations around insurance.

And I'll just close with know Mother Nature is forcing all of us in California to be insurance experts. And we're going to do what we can to empower Californians to know what their rights are and to ensure that we stabilize our market for the future because not having an insurable state or an insurable planet is not an option. Thank you.

Thank you, insurance Commissioner. And I'd like to also thank your staff for being here today. And this has been incredibly helpful for us to be able to do this in such a public way. And I'd like to thank my colleagues, too, for being here.

Thank you.

Good day. Next, we'll move to public comment. During this portion, everybody will have two minutes, and we're going to hold to that timeline. So two minutes each.

Is this where I stand for public commentary? Okay. I'm sorry that the insurance Commissioner left because I really wanted to address my comments to him as well. My name is Adriana Lim, and I represent a homeowners Association of 70 units here in the City of Pasadena. And we have become a victim of, I think, the war between the insurance Commissioner and the insurance companies. We have become basically uninsurable. We have been non renewed by our insurance company, and I'd like to let the board know.

You guys talk about this California fair insurance alternative like it's fair and affordable. I'm going to give you a quote for our units. By the way, we applied to 46 insurance companies in our desperate search looking for insurance. I am a layperson. I knew nothing really about insurance until I became Vice President of my HOA and found out that our HOA's commercial policy was being canceled. Mind you, we are being canceled because of a fire risk.

However, we've never had a claim for any type of fire risk in the 58 years we've existed. The other issue that I have with how our insurance is being held is our individual policies deem us as being low risk in fire. But the commercial policy that we need to carry for our HOA unit Deems us high risk. And it's that deeming of the high risk that got us non-renewed by our insurance company. We applied to 46 companies in our desperate search for insurance.

The rate that was quoted to us by the California fair Plan for the 24 year was $348,786 per year. To have fire insurance for our commercial, for our HOA fire insurance policy, of which we've never had a claim in 58 years, yet our individual homeowners insurance policy has us declared as being a low fire risk. I find that there's an issue with the same building being considered low fire risk for an individual policy and high fire risk for the same building just collectively put together.

And I wish that the insurance commissioner was here to explain why insurance companies can do that. And farmers insurance was our carrier. The individual Farmers Insurance Policy indicated that we were Low fire risk. The commercial policy that we have to buy as the HOA considered us high fire risk. I find that to be contradictory, very confusing for our homeowners.

And I have an HOA board meeting tonight, and I have to explain why we're going to be making a special assessment of $500 per household to help cover our costs for our insurance.

Thank you. And the insurance Commissioner's Chief Deputy is still here if you want to try and talk to him.

Oh, I hope you're taking notes. By the way, I'd like to volunteer to be in any type of Commission that you have with regards to insurance now, since I've suddenly become self educated on this. Thank you. Thank you very much for your time. I appreciate it very much.

Thank you.

Okay. Hello. Hey. Good morning, Madam Chair and Members. Sarah Taylor, on behalf of the Personal Insurance Federation of California, we really want to thank the Committee for all your work this year addressing wildfire insurance risk, resiliency and recovery. Today's hearing to explore the Commissioner's sustainable insurance strategy wouldn't be possible without your foundational work, which has led us to the point where the Governor, the insurance Commissioner, key consumer stakeholders and insurers are all moving in the same direction. We finally have agreement on the problem.

We finally have agreement on the solution, and now we need to move quickly and collaboratively to increase insurance availability and reliability for all Californians. We should understand the work the Department of Insurance is undertaking is complex and it's difficult, but also necessary. It's going to require compromise by all stakeholders. I assure you that insurers do not really take the required commitment to write at least 85% of their statewide market share in high wildfire risk areas lightly or easily.

Other states do not impose such requirements as a condition to use modern risk assessment tools like catastrophe models or to allow the net cost of reinsurance. So this is unique aspect of doing business in California, but we accept this as necessary for us all to move forward. Clearly, there are many details that need to be worked out to make the Commissioner's strategy successful, but we remain optimistic that it will result in a more stable insurance market and provide greater insurance availability across the state.

That's our shared goal, and we appreciate the Commissioner's leadership and PIF is committed to being a full partner in that process. So thank you all.

Thank you. Good afternoon, Madam Chair, Members of the Committee, Armand Feliciano, representing the Fair Plan. I'm here today just to give you a quick update what a fair plan is, and I won't belabor the point. I think it's been discussed. The demand is pretty high with the fair plan at this point. That's a widely discussed issue. To date, the fair plan is at 340,000 policies in force. It's grown from 50 to about 200 staff. They have about 40 temps trying to manage the demand.

And part of them managing the demand is that they had recently put in a system to address their policy claims and billing. With that, obviously there's some combination of high demand and new systems. There's been disruptions, you've probably heard. But to address those issues, the fair plan is working with the realtors, agents, policyholders. They have an escalation team, they have webinars, and they do have recently hired more temps.

Nonetheless, I think the message here today is the fair plan is doing the best they can, given the demand in front of them, and they remain committed to working with policyholders that need the fair plan. Thank you.

Good afternoon. My name is Ryan Gazelle. I'm here on behalf of community associations Institute CAI. We represent over 50,000 homeowners associations throughout California which house more than 14 million people. First, I'll tell you what we've accomplished with the help of the Department of Insurance. 60% of the associations in California are condominiums and townhomes. For many years, the California Fair plan did not cover them, leaving those folks in many cases without an option for insurance.

The Department of Insurance helped to negotiate with the fair plan to be sure that the condominium and townhome owners also had access to the insurance they needed. The Department of Insurance also led the charge in increasing the limits available through the California Fair plan from 5.6 million up to 20 million, which was very helpful. The next steps. We know that the 20 million limit with the fair plan was just a release valve for the pressures building up in the insurance market.

It allowed many families to get insurance that would not have it otherwise. But this solution is not sustainable the way that it is. We all agree that bringing traditional carriers back into the market will help Californians find the insurance that they need to protect their homes.

How we do that should include, and this is where you guys can help, a definition of wildfire that is agreed upon by the carriers and the Department of Insurance so that existing insurance policies that already allow for a wildfire deductible or for wildfire to be sold as a separate risk can actually be sold in California.

Otherwise, carriers will exclude the peril of fire altogether because they cannot separate out wildfire in a way that would be recognized by the Department of Insurance when it came to paying out claims. We also need legislation that would allow carriers to bypass the standard fire policy form, which is currently a major roadblock for carriers in our state. Thank you very much for your understanding of how serious this insurance crisis is, and we thank you for trying to take steps to mitigate it.

Thank you.

Good afternoon, Madam Chair, Members of the Committee, Denny Ritter here with the American Property Casualty Insurance Association. I do want to thank you for the hearing today and the really thoughtful discussion. California's outdated insurance market is really failing. Families, consumers, businesses, really, everyone in the state right now is suffering, and we're acutely aware of that.

We commend the Commissioner for all of the action he's taking to fix this insurance coverage crisis by enacting these regulatory reforms to restore the market and protect consumer access to that coverage. The Commissioner's progress reflects the first of many steps that are needed, and we look forward to be an active partner in that process. I do want to reiterate and reemphasize something the Commissioner said. Insurers do not want to leave the State of California.

We are committed to working with policymakers and to that know, we want to thank the speaker and we want to thank this Committee and the chair in particular for holding these hearings and engaging in these thoughtful, not always exciting discussions and really look forward to bringing stability and availability back to the market. We remain committed to working with the Governor, legislative leaders, the Commissioner, and all engaged stakeholders as we seek solutions to the issues that are plaguing us all. Thank you for your time.

Hello, Committee Members. My name is Carmen Balber. I'm the Executive Director of Consumer Watchdog. And you all asked what you can do of the Commissioner. And I have a proposal for you. The number one thing you could do to guarantee that homeowners who protect their homes from fire have insurance quickly is to mandate that home insurers sell it to them. We have a mandate in California that says all good drivers get auto insurance.

We should have the same mandate for home insurance for homeowners to meet the state approved guidelines for home hardening and mitigation. So we urge you to bring that proposal up quickly in the coming legislative year. It was a proposal that didn't get a hearing in this Committee last year or this last legislative session.

We urge you to address that quickly, even with urgency next year, because that will get the people in your district, Mr. Wood, who have done all the right things and mitigated insurance for their homes. I also just want to frankly express my disappointment that you didn't ask the most important question of the insurance Commissioner, and that is for proof that the commitment that he says he's extracted from the industry will actually get people covered.

As you all know, there was legislation that circulated in the Legislature last year that consumer watchdog obtained under the Public Records Act, and it was a model for the regulatory proposal that the Commissioner put forward in September when that legislation didn't pass. And that proposal had two massive loopholes in its 85% commitment that meant that no new homeowner was going to have access to coverage. The first loophole was that the Commissioner could waive it for any insurer who said they couldn't meet it. That's one.

The second one is almost more important that insurers could meet that commitment by offering not regular, standard homeowners insurance policies at a reasonable price, but by selling bare bones, fair plan like policies instead of a regular policy on the voluntary market. And if all consumers are getting out of this deal is a plan like the one they don't like and can't afford on the fair plan today, then consumers have gotten nothing out of what is otherwise a giveaway to the insurance industry.

So we urge you, we hope next time you have the Commissioner around, you ask him that question. And we ask the Commissioner here today to answer that question, because we have seen no evidence that this 85% commitment will actually play out to new home coverage for Californians. Thank you.

Thank you. Okay, this concludes our hearing today. Thank you all for attending.