Senate Standing Committee on Insurance

The Insurance Committee will now come to order. Good afternoon, everyone. Thank you for being here. We're holding this Committee hearing in the old street building, so I'm going to ask all Members listening to please come to room 2100 so we can establish a quorum and begin our hearing. But as I look around, we don't have a quorum, and I don't want to delay everyone. So we will start as a Subcommitee and establish a quorum as people come in.

And so with that said, today we have four bills on calendar. One of those bills, SB 1217, is on consent. And before we hear any presentation again, I will have to wait for the quorum. So at this point, we're going to move forward as a Subcommitee. So we are going to start with the following bills and we'll wait for consent calendar until we establish that we have enough present. We'll hear from the first author. Is Senator Nguyen here with us?

She's still not present, so we will move on. I see Senator Becker, who is present. Senator Becker. Senator Becker will be presenting SB 1060. Are your witnesses present?

Yes.

Okay. So I wanted to let you know. So when you're ready, you may begin. Thank you.

Thank you, Chair. Yeah, we're just taking for Senator Dodd, who's a co-author, so hopefully he'll be able to make it for the discussion here. He has a great insight. First of all, I think want to thank you, Chair, and your team for working hard with us. This is a complicated area and a complicated space at a complicated time. As we all know, the industry has been going through a lot, and you're working very comprehensively to try to address that.

And I think that's really our message here with this bill is that we believe and hope to show that this is a very complimentary to those other efforts that are going on at this time. And this is very much meant to be a collaborative effort ultimately with industry to say, hey, we're doing the work as a state. We want to make sure that's recognized. You tell us if it is or if it's helping or not helping.

But again, we're doing that in the context of a time that I know has been precarious. We have obviously had companies leave the state. So this is really meant to be an effort to say, hey, here's what we're trying to do, and hopefully this is helpful to the overall effort. Tell us if it is or not. With that, let me go into some of the details. We all know the story about devastating impacts of increasingly frequent, severe wildfires and more and more people having insurance unavailable.

In an effort to save lives, protect property, and address the insurance crisis, California has prioritized efforts to prevent wildfires and to reduce their severity. State, local governments, and individual property owners have spent billions of dollars on hazardous fuel reduction, home hardening, and creating defensible space, all recognized approaches for reducing the severity of wildfires. And this is so I see this investment in Budget Sub 2, which is the Budget subcommitee that I oversee on. Thank you. Budget Sub 2 on Climate and Resources and Environment.

And what I've seen there is that we've appropriated $3.7 billion, and I should repeat that. We've appropriated $3.7 billion for forest treatment and hazardous fuel reduction just since 2017. However, despite all this effort to reduce wildfire risk, the underwriting models used by insurers to decide whether to renew policies or offer new policies usually do not take into account the risk reduction from these activities. And that means that, of course, then communities then are not seeing benefits of the efforts reflected in the availability of insurance.

And we want to know as a state, again, we are spending this money, we're spending the taxpayer's money, $3.7 billion of it and more every day, as I see it in my subcommitee, we want to know from them, is this helping to reduce risk or not? Right. That's all this what this bill is doing, asking them to take into account in their models.

So this bill will direct property insurers to incorporate wildfire risk associated with hazardous fuel reduction, home hardening, and defensible space into the underwriting models which they use to evaluate risks and decide whether to offer coverage. And I want to say, be very clear, because I know we're having good conversations with the insurance industry. I know the industry was initially very concerned about this bill, and they thought we were trying to mandate that they offer coverage, or we're trying to control their underwriting.

And we're here to say very clearly, this bill is not about that in any way. And we've taken a lot of steps working with you, Chair, to really clarify that. That was never the intent of this bill. And we made some amendments to clarify this bill is only about taking those risk reduction efforts into account. That's what I'm asking, taking those into account in their underwriting models so that fire risk can be more accurately measured.

I will be accepting the Committee's amendments as shown on pages 3 and 4 of the analysis, which further clarifies the department's authority to ensure compliance. For all these communities who are making these investments, it's only fair that those efforts are included. And again, we feel this is a very complimentary effort to all the other work that's going on around forward looking models and coverage ratios and all that sort of stuff. We think this is very complimentary to that.

And to say, again, to those insurance companies, take this count of your models. If you find this helpful, great. If it's not, tell us we should be spending the money differently. With that, I respectfully ask your aye vote. And I have two witnesses, Dave Jones, who's a former Insurance Commissioner, and Anne Cottrell, Napa County Supervisor, speaking for the Rural County Representatives of California.

Thank you, Senator Becker. And you may proceed to the front. And as they're coming forward, I'm going to take a pause to establish a quorum. Madam Secretary, can you please call the roll? And you may come to the front.

[Roll Call]

Okay, now that we have established a quorum, we'll proceed with testimony in support of Senator Becker's bill. And you may proceed when you're ready. Thank you.

Thank you very much, Madam Chair. Senators, my name is Dave Jones, and I'm supporting the Nature Conservancy in their sponsorship of Senate Bill 1060. And I also had the privilege of serving as the state's Insurance Commissioner from 2011 to 2019. Senator Becker said, in order to reduce the risk of severe wildfire, the State of California has appropriated $3.7 billion for forest treatment, including prescribed fire and thinning.

But in addition to that, local agencies, including counties, cities, towns, fire protection districts, community service districts, and others are also spending tens if not hundreds of millions of dollars on wildfire mitigation. And then on top of that, homeowners associations and individual homeowners are undertaking home hardening, defensible space, and hazardous fuels reduction.

SB 1060 simply and narrowly makes sure that if property insurance companies use risk models to decide whether to write or renew insurance, if, doesn't require them to use it, that these risk models account for the billions being spent by the federal government, the state, local governments, and homeowners and homeowners associations associated with wildfire mitigation actions.

Now, Willis Towers Watson, the global reinsurance broker, and the Nature Conservancy demonstrated in a jointly published technical paper in 2021 that the risk models currently used by insurers can be adjusted to account for the risk reduction associated with landscape level wildfire mitigation. Those results were actually replicated about a year later in a paper separately funded and published by Moody's RMS and the American Forestry Association.

SB 1060 is consistent with Insurance Commissioner Ricardo Lara's sustainable insurance strategy, which, as proposed, will allow insurers to use catastrophe models for rating and requires those models used for rating to account for landscape, community and property level mitigation. But here's the thing. Homeowners won't get the benefit of a rate that reflects these investments if they don't have a fighting chance to get their insurance renewed. And the Insurance Commissioner's authority is generally limited to regulating rates and models used.

I'm sorry, is generally limited to regulating rates and models used to set rates. Only the Legislature can make sure that the risk model is used for underwriting. That is, the models that are used to help insurers decide whether to write or renew insurance account for all of these various levels of wildfire mitigation. SB 1060 does not intrude on insurers underwriting discretion. They retain full discretion to decide whether to write or renew insurance.

The Nature Conservancy and Senator Becker's office met with the Personal Insurance Federation and have taken amendments to clarify that bill is limited solely to the models used for underwriting. Insurers retain their discretion underwriting decisions. And the author's taking amendments, thoughtfully proposed by this Committee that make sure that we're not expanding the Insurance Commissioner's authority into underwriting.

So SB 1060, in sum, encourages more investment by state and local governments, HOAs and homeowners in home hardening, defensible space, community landscape scale, hazardous fuels reduction because those investments will then be accounted for in the models used for underwriting used by insurers to decide whether to renew or write insurance. These investments in mitigation need to be accounted for in the models because we know that mitigation works to reduce wildfire risk. The Nature Conservancy and I urge your aye vote on SB 1060. Thank you very much.

Second person, you may proceed when you're ready. Thank you.

Thank you. Good afternoon, Chair Rubio and Members of the Committee. Thank you for the opportunity to present from a local and a ground level perspective on SB 1060. I'm Supervisor Anne Cottrell from Napa County, and I'm here today representing the Rural County Representatives of California. Your Committee already knows about California's wildfires, rate hikes, and non-renewals. What I want to share today is how effectively our residents and communities have taken action to reduce their wildfire risk.

Napa County and our partner, Napa Firewise, have invested millions of dollars in wildfire mitigation efforts. I have seen miles of upgraded dozer lines hiked through hundreds of acres of shaded fuel breaks, and watched as our chipping program turned would be fuel into mulch for backyards and forest floors. Our cost sharing program for home hardening is is also a success. Residents have invested $2 of their own money for every dollar they received through the program. Neighborhoods are working together to leverage each other's safety measures.

We are collecting data and building dashboards to show the impact that these projects have on our landscape. Napa County is now safer and more resilient, and this work is happening all over the state as communities in counties from Modoc to Mariposa and from the Sierra Mountains to the San Gabriel Mountains work together to become more fire safe. So how should insurers value this work? RCRC has engaged with Commissioner Lara regarding his sustainable insurance strategy.

That strategy allows for catastrophic models for rating and requires those models to take all this mitigation work into account. SB 1060 is consistent with and complementary to that strategy by making sure that insurers consider mitigation work in their risk models for underwriting as well. This is critical to ensure that insurance companies value this work, as Senator Becker said, to take it into account in making their decision to provide coverage in the first place.

Our residents and vulnerable communities are doing the right things to reduce wildfire risk, and they need your encouragement and your legislative support for their investments in wildfire mitigation. On behalf of RCRC, I urge your aye vote on SB 1060 and thank you for your time.

Thank you for that testimony. Now, I will turn it over to those here in the room in support.

Thank you. Kim Stone of Stone Advocacy on behalf of Consumer Watchdog in support.

Thank you. Dylan Elliott on behalf of the counties of Napa, Nevada, and Marin Counties, all in support. Thank you.

Santiago Rodriguez with California Environmental Voters in support.

Ada Waelder with the California State Association of Counties in support.

Carlin Shelby on behalf of the Cities of Oakland, Berkeley, and Santa Barbara in strong support. Thank you.

Zach Cefalu with the League of California Cities in support. Thank you.

Thank you. Seeing no other witness in support, now I will turn it over to the lead witnesses in opposition. If you don't mind, they will take the table now.

Welcome. And when you're ready, you may proceed. So, Seren, you will start. Go ahead.

Good afternoon, Madam Chair and members. Seren Taylor, on behalf of the Personal Insurance Federation of California, we greatly appreciate the efforts of the author and the committee to refine the bill. But unfortunately, we still have very serious concerns. SB 1060 requires an insurer that uses risk models for underwriting to account for a set of broadly defined wildfire risk reduction activities.

However, these criteria conflict with the mitigation factors required for the wildfire risk models in the CDI Safer From Wildfire regulations and the newly proposed CDI Catastrophe Model regulations. We think it's reasonable to expect the state to have one science-based mitigation standard for compliance. Imposing a new and different underwriting standard creates confusion and is not consistent with the sustainable insurance strategy introduced by the commissioner and supported by the governor to address the insurance availability crisis in a thoughtful and comprehensive manner.

At best, this bill is premature until we all understand what the new CDI regulations will ultimately require. Additionally, even with the committee amendments, which we appreciate, SB 1060 still asserts new powers over insurer underwriting and provides authority for CDI to demand unlimited information to ensure compliance. While this may not be the author's intent, it is what the text of the bill allows, and it will further destabilize California's fragile insurance market.

If the goal of SB 1060 is to help policymakers and consumers better understand which mitigations are considered effective, the safer from wildfire regulations already require mitigations to be given a specific value that is clearly explained to consumers. In short, we believe this bill is both premature and harmful to the collaborative efforts. And I know folks kept referring to the idea that this is complementary. We don't believe this is complementary.

We believe this is contrary to the work that's being done to restore insurance availability and reliability, and therefore, we respectfully request your no vote. Thank you.

Proceed.

Good afternoon.Mark Sektnan with the American Property Casualty Insurance Association. Also, respectfully, in opposition to SB 1060, Seren did a good job of walking through what we think are some of the conflicts with the programs currently going on. If this bill was to pass, insurers would be kind of in an interesting spot because they'd in essence have to apply, possibly with two different, slightly different, but different nonetheless, models.

This bill also constitutes a change to Prop 103 by granting the department the authority to review and quote, unquote: confirm insurers guidelines. Confirm is just another word for approve. Prop 103 does not allow the department to review underwriting guidelines for homeowners insurance, and this has been upheld in court. It is also very important to understand that mitigation alone will not restore the insurance market.

Forest-level mitigation, community mitigation, and parcel-level mitigation are vitally important for all Californians to protect our citizens, our infrastructure, and our property. However, insurance crisis is largely driven by inadequate rates, in addition to the increased risk posed by wildfires. Undoubtedly, the cost of insurance is going up due to the effects of climate change, high inflation, and lawsuit abuse. But it is an antiquated regulatory system, and inadequate rates are largely contributing to insurers' decisions to limit new policies or leave the state altogether.

These more systematic issues are why some insurers are not only not writing new policies and wildfires but not writing any policies in the state. Rate inadequacy and the use of important tools like cat models will allow insurers to price the risks we face in California. Efforts to encourage community and property level mitigation will hopefully result in less losses in the coming years, which will eventually be recognized in the premiums consumers pay. With adequate rates, insurers are likely to write more insurance, and a natural place to write more insurance would be in areas where community mitigation is done using science-based standards designed to reduce the risk of wildfire. Thank you.

Thank you. We will now turn it over to those in opposition here in this room.

Good afternoon. Shari McHugh, representing the Pacific Association of Domestic Insurance Companies, in opposition to the bill.

Thank you.

Good afternoon. John Norwood, on behalf of the Independent Insurance Agents of California, also in opposition. Thank you.

Thank you. Anyone else wishing to state their opposition? Seeing none, I will take it now to the members wishing to speak. We'll start with Senator Dodd.

Thank you very much, Madam Chair. First, I want to thank Senator Becker, his staff, and TNC for working with my constituents from Napa County to incorporate their ideas about wildfire risk reduction and insurance into his bill. I am pleased to co-author this measure. Since the catastrophic fires of 17, 18, and 20 struck my district, my county, cities, fire service agencies, and fire safe councils have been making significant investments of time and money to implement community wildfire prevention plans.

My friends, neighbors, and homeowners throughout my senate district have also been investing significant amounts of money of their own, money to harden their homes and to further reduce the risk of wildfire damage. It's now high time to ensure that property-casualty insurers account for those wildfire prevention actions in their decisions to cover and price property insurance. And I say cover.

I think I'm more worried about coverage than I am about price because I'm, you know, in the past, we've had, "Oh, if we do this, we want discounts. We want more discounts." Christ. We don't want discounts. We want insurance. And so the discount stuff is a myth in my view. We need to have coverage, you know, for our communities. Commissioner Laura, Safer from Wildfire, sustain and sustainable insurance strategy regulations importantly address the means and methods of that pricing of insurance.

That's true, but the fact of the matter is insurers have to decide to write insurance in the first place. And SB 1060 takes an important step to have insurers account for all the risk reduction work that has taken place when making the decision to provide coverage in the first place. Those were prepared remarks. I'm just off the cuff listening to what I heard today. The last speaker said, you're more worried about inadequate rates and the risk of wildfires. Why get that? So are we.

And so, to lessen the risk of wildfires, we're doing fire mitigation everywhere. And the idea that the insurance companies aren't paying attention to that, even on your own, I can't, I honestly do not even believe; I mean, I've got people in my district that are getting insurance canceled, for heaven's sakes, in American Canyon in Vallejo, far away from the wildfire areas. There just seems to be no rhyme or no reason to what's going on there. But I'm going to step back.

I totally get the fact that we do not have a stable insurance market. I totally understand that. And I agree that we don't, and there's a lot of reasons for that. This is one of those reasons. However, with what the insurance commissioner is doing, these were the factors that you all were telling us a year ago, two years ago, of what was really needed to create a stable insurance market. And I think this bill, I'm just saying, Senator Becker, it could be a year premature.

But I think getting it on the books and getting the insurance companies, you know, on board and getting used to this because I won't be here next year.

And I'm telling you, if the insurance commissioner gives you what you wanted and the ability to get rates and rates there quicker and reinsurance and catastrophic modeling, and the communities are doing the work that we're all doing throughout our communities and our file, firewise and the insurance company, you better be telling your bosses back at the home office that you're going to get a lot more bills. This is nothing. This bill here is really a nothing burger.

In my mind, I think it's a great first step just to get recognition of what's going on in the marketplaces on things that your companies should be monitoring in the first place. But short of that, if there - I just really believe that you need to be communicating with your home offices on what's going to happen in this institution a year from now, a year, and 18 months from now if there's no action on the part of the insurance companies.

Thank you, Mister Dodd. I'll turn it over to Senator Niello.

Thank you, Madam Chair. Senator Becker, you mentioned the 3.7 billion that's been allocated for forest management by the state. How much of that has been spent?

My belief is that that has all been spent, actually, I don't know if anyone can verify that, but I can get back to you on the specifics.

I don't know the precise number, but my understanding is not all been spent, but one of us is right, and we'll find that out later. But for the -

I will say one piece was that is that I knew we do have a goal of 1 million acres treated a year, and we're working up to that. We're not at that goal yet, but I know we're working up to that. And that money is also part of it. Yeah.

And it is a very important part of our challenge. Question for the insurance witnesses from the insurance industry.

Can I ask Seran to join us up here so you can answer questions in case we have any? Thank you.

I was looking at those budget numbers yesterday if you want to talk about them.

Mister Segnant, you want to join in case you have something to add?

Do you have anything to add to the question that I just asked?

Well, sure, I would, actually. So, I was looking at the most recent LAO reports. Obviously, the budget proposed this year already has reduced the funding by $100 million. The last LAO report that looked at, and we talk about in the budget, what's appropriated versus what's actually liquidated or spent. And they don't have the up-to-date numbers. No one has them like what's been actually spent. But the last report they had, less than half of it was actually spent.

So there's much that's been programmed that's intended to be spent. But really, out of the 2.7 billion over the last four years, the last data we have, less than half of it's been actually spent. And when you talk about $3.7 billion since 2017, that's $500 million a year statewide for the entire State of California.

And I think a much more worthwhile conversation would be talking about, can we do an analysis of how much the state needs to spend to get a meaningful reduction in risk, an annual commitment, and then what does it take to maintain that. Because remember, even if you spend $500 million a year statewide, all that grows back in a year. So you have to stay on top of it.

So, you know, this idea, I think that $3.7 billion on a statewide basis, while it might be meaningful in certain communities, is going to have a statewide impact. That's going to change the outcome of an insurance analysis, I think, is a little, you know, wishful thinking.

So, for the question that I wanted to ask: Senator Dodd, my friend and colleague, indicated that it appears to him that you're not paying attention to the issue of the mitigation, particularly done by individual homeowners. And I could see an individual homeowner saying, "Well, I'm hardening my property to protect against a fire that might come through this area, and you're refusing to take that into account in assessing whether or not you should insure me and if you do, how much you're going to charge me," right?

So, yes, I mean, this is a difficult one because, you know, I think we understand on an intuitive level why everyone, you know, people, legislators, everyone wants to focus on this mitigation issue because it's something that people can control and they feel they've done the right thing and they should be rewarded for that. And that is absolutely a fair and natural instinct. But what most people don't understand, and nor would they unless they're sort of in the weeds of insurance.

But the mitigation that one does on their home is but a small component of the overall decision. And so, for example, a perfect example is if you look at State Farm, who's recently said they're not writing anywhere in the state. It's because, as an insurer, you have to have a certain amount of capital to write policies. You can't just write policies because you feel like it. You have to have capital to back up and pay those claims. They call it surplus or claims-paying reserve.

And when you don't have that capital, you can't write a policy. So it doesn't matter if you could have a concrete bunker with a steel roof. If you look at State Farm, where their claims-paying reserve, they've lost so much money; they've lost 75% of their claims-paying reserve. So they're frozen. High-risk areas, moderate-risk areas, low-risk urban areas, they're not writing anywhere. They don't have any reserve capital to go do that.

So this focus on this idea that you mitigate and you're not getting the result you want is, I think, intuitively understandable, but it's not actually connected to really the regulatory and the financial solvency criteria or concentration risk or myriad -

I need you to start wrapping it up.

Yeah. Yeah, certainly. But myriad other components that go into this decision. And so we could talk more, but I'll freeze there. Thank you.

Thank you.

In other words, as Senator Becker said, it's complex for sure. And certainly it is. And we certainly want to encourage people to harden their homes, certainly, at least not discourage them. And in forest areas where you're surrounded by trees and a lot of forests, you can harden your home as much as you want. And if a wildfire comes through, unfortunately, it's probably not going to help. Now that sounds like I'm saying don't worry about it if you're in there unless they're going to fix everything else.

And I don't want to leave that message, but I just want to explain that that is the nature of the risk that insurance companies have to recognize on top of the rather severe financial risks that they have. And Senator Dodd also said, you know, we'd love to have prices like we have had, but it really doesn't make any difference if we don't have the insurance itself. And what we're faced with right now, more important than complexity, is an extremely unsettled and unstable insurance market.

It is complex, but more importantly, the instability and unsettled nature of this market is really the severe challenge that we're dealing with, and it doesn't seem wise to me for the legislature to inject additional variables into the mix right now, as I am hoping. I've not been terribly enthused about the action of the insurance commissioner so far, but he's saying the right things, and that is the avenue through which this is eventually going to be solved.

Maybe the legislature can make a difference at the margin, but let's not make, let's not have that margin be one that injects additional instability and unsettledness of the market by virtue of our actions. And I'm concerned that that is indeed what this might be doing.

Thank you. Go ahead. You wanted to respond to that?

Yeah, I just will say a few things, and I appreciate - it is that complex, and we spoke a little bit earlier. I'll just say a few things now, and then there'll be some more, you know, discussion. And, you know, there may be a chance to have our witnesses respond, just particularly on that conflict issue that was raised. I'll say a couple things. One is that, you know, the Department of Insurance authority is mostly limited to regulation of rates, not of models.

So just to be really clear on that, so we don't, we can't determine rates. We're not trying to, this bill, legislature can't do that. That's the power the insurance commissioner has, and that's great. But what we can do is have some authority underwriting models. So, just to be clear on that, there's separate authority there. And so I think we're doing what we can do here. And this in response to the investment piece. Yeah, the bunch of it was appropriated last year.

And thanks for clarifying that. But I guess the point here is that it's also a state and local and county, I don't know if you want to estimate. You said millions just in Napa alone. I think that's why we have the League of Cities and the counties here. Do you want to mention that?

Yeah. Thank you, Senator Becker, for the chance. Right.

In our county, over the past three years, we as a county have spent over $15 million. And just to that point, we're also the recipient. We've had private donations at a much smaller level, but we've also, like many other counties in the state, are the recipient of FEMA dollars toward this. Our county will be getting $37.5 million from FEMA, and over half a dozen other counties are receiving similar-sized FEMA grants.

So it's not just the state dollars coming in, it's federal dollars and other avenues of funding for this kind of work as well.

Great.

Thank you. So now I want to turn it over to Senator Caballero, who also wanted to make some comments.

She said she would yield to me since my name was invoked a couple times.

Go ahead.

The good Senator Niello, of course. Of course.

Clearly noted.

First of all, for the discussion. I talked to Chief Tyler a couple weeks ago, and the money is programmed, so it may be slow getting out the door, but the money is being spent. Period. And nobody here is talking about one-off, somebody mitigating the fire on their home in a community. What we're talking about here is community-wide mitigation, and it's really clear that we get that across. Community-wide mitigation, and that's all. Thank you.

Senator Caballero.

Thank you very much, Madam Chair. I appreciate the opportunity to make some comments, and I agree with a lot of what my colleagues have been saying. Let me just start off by saying my frustration is that we don't act in a coordinated fashion to address issues that we know are going to be very, very serious in 2016. When I came back to the legislature, I had just seen maps that indicated we had 144 million dead or dying trees up in the Sierras.

And I asked a number of the environmental organizations that came in to see me, "What are we going to do about these trees? They are fuel. They're dangerous. We need to get them out. We need to replace them." And I was told: leave them. And this was before the big wildfires hit. And I lost my - I have family that lost their homes, two of whom were firefighters in paradise.

So I am intimately related to the devastation that these fires have, have wrecked, but we still haven't gotten off the dime to allow, allow biomass stations to open up and to start pulling down these dead and dying trees. They're there still. And in the areas that are burned, the trees are still there. And so it is, part of the challenge that I have with the bill, quite frankly, is one, is that I do think the industry is totally destabilized by the fires that we've had.

And the losses have been tremendous. And what we want them to do is to come in and to reinsure. And the more pressure we put on them to do things that are, that are new and innovative and that cost money, the least likely we are to get them reopened again.

When I look at the language of the bill, and I also looked at the edits as well, although it appears as if it's a kind and gentle way of saying, "Gee, we'd like you to take this into consideration. The money that we're spending on all of these projects to ensure safety in the community." The bill says it shall, and it says to ensure compliance. And so at some point, I mean, shall means shall, and it's not may.

And ensure compliance means that at some point, there's going to be an obligation to show some kind of proof of how you've taken this, put that, put, put this within your model and that, and if you haven't done it, that there's a consequence for it. So I have some, I think this is - I think it's a great idea before it's time, I guess, is where I'm coming from. And I think we need to stabilize the homeownership insurance market.

And it's not our job, but we need to understand that it's the job of the insurer to protect their financial solvency, and those are really important to me. So I have real issues with doing anything more that flies in the face of what the insurance commissioner is doing right now as well as the governor. So it's my position.

Can I respond to that?

And then would you like to close any other, I'm sorry, any other comments? No, go ahead.

Well, so I want to give my witness a chance, but I just want to just address a couple of those things for Senator Caballero. This bill is about coordination. That is what this bill is about. The bill is about we want to incent everyone to do the right things. So we want incent, you know, if we don't pass this bill, we're saying this $15 million you're spending. Yeah, don't spend it. Maybe it's not helping.

You don't know if they're taking it into account like we're saying, you know, all the, all the work that all the homeowners are doing and the $15 million, the county, I would think you heard of that multiplied across all these regional counties and the 37 million they're going to get to FEMA, we're saying: yeah, don't do it. We don't know if it helps or not. Don't do it. This is all about coordination. We're just trying to incent the right behavior.

And we're saying, hey, and I agree with you, by the way. We didn't always have the right policy. I think actually now we do have, I think with all the aerial resources and the tech and increasing CAL FIRE, I think everything that we're doing; actually, we do have a first time that I've seen a really coordinated strategy. But I agree with you. I think that we didn't, and this is saying, "Wait, we went and sent that behavior, went and sent the state to do that work."

You're talking about, again, my subcommittee; I see the climate catalyst fund that's trying to spin up new biomass businesses to do exactly what you're talking about. And we're saying we want to encourage all that. Right. And if people do that work, then they should get the credit. And the shall, it's a really important point. But again, it shall take into account that it doesn't say I don't completely agree with Senator Dodd's characterization of the lightness of the bill, but certainly, we could be much more heavy-handed.

We could be much more heavy-handed. The bill is saying you shall take into account. It doesn't say you have to write more policies. It doesn't say you have to do this. It doesn't say you have to. Certainly, it doesn't say you have to have an impact on rates at all. It's just saying you shall take it into account in your model, and I think that is a gentle and appropriate way to do it.

I do want to my witness, Mister Jones, just address that coordination issue with the Department of Insurance, because it was raised that maybe some of this is contradictory. Is that okay, Chair?

Absolutely. We just need to keep it brief.

Thank you, Madam Chair. And it's a treat to get to.

Appear before my colleagues, Mister Dodd and Miss Caballero, and Miss Rubio and Mister Niello, with whom I served on a number of joint powers entities back in the day in Sacramento. So I take your point, Senator Caballero. The word shall is in Section 3001, but it's the model shell account. And frankly, we couldn't come up with any other way to make sure that the models account without including the word shall. But if there's - if the bill could be permitted to move along, and if there's other verbiage that the author could work with the chair and the member on to reduce the apprehension about that, but it's just the model shall account. The insurers retain total discretion in terms of their reserving their pricing. They're going to get a lot more. price under Commissioner Lara's proposal, and they've made a solid case for that. And they retain total discretion with regard to deciding whether to write or renew insurance. Yes, it's like a layer cake. There's property level mitigation, home hardening, defensible space, community mitigation, and landscape-scale mitigation. This just says the models need to account for that. In some cases, if it's just the home hardening, it's not going to be enough, as Senator Niello has said.

But if home hardening is occurring where there's other things occurring, it would be great if the models would account for it so that the homeowner would have a fighting chance then to get a risk score that the insurer could consider. Ultimately, the insurer decides what they want to do, so we're not forcing them to do anything. And then just to close. Madam Chair, I appreciate your indulgence.

This language with regard to what the models have to account for is the same language, essentially the same language as in Commissioner Lara's proposed regulation on what the models have to account for in rating. So he's dealing with rating. He wants to make sure the models account for these things only. You can decide whether the models for underwriting count for this. They should, but the insurers retain ultimate discretion with regard to whether to write, whether to renew, and how to reserve.

All those things are not touched upon by this bill. So we would respectfully ask for your. I vote.

Thank you. Seeing no more comments from my colleagues, I want to add my voice to this, and, you know, I sat down quite a bit with the author on this bill, and I wanted to give my colleague the opportunity to work the bill.

But, you know, all stated, for the record, I had hesitations because I think no one has the background knowledge that I do as it pertains to how hard we worked last year, giving up holidays, weekends, hours and hours, and end trying to come to an agreement. And so I know that you know, I will respectfully disagree with my colleague Dodd that the industry is not paying attention to some of these issues because we spent months and months trying to come up with the solution.

And in my personal opinion, it's the first time that I saw consumer advocates join with the insurance commissioner, join with the industry. It was lengthy; it was tedious. And the reason I want to state that is because, you know, it would have been my preference to have a bill last year that would have highlighted everything we worked on because, as it stands, we're not seeing. So we're all sort of guessing as to what's happening.

And I wanted to have a bill in place that would highlight everything we worked on. It was a lot, which included everything that we've been talking here about. And I think I have to agree with everyone. Everyone has a little bit of truth here as it pertains to making sure that those at home harden get credit for it. We also had in the discussion, we talked about the right of first exit to those that have home hardened to exit out of the fair plan.

We wanted to depopulate the fair plan. So a lot of work went into talking about some of the credits, what we can do, how do we collaborate. And so I want to give credit where credit is due, and everyone came to the table. No one was happy.

And I think that's just probably an indication that it was a good middle ground because everyone was kicking and screaming, but everyone came to the table, and everyone agreed for the sake of making sure that our consumers, consumers were at the heart of the discussion, that there was availability, affordability, and that we keep a healthy market here in the State of California, which is a really big struggle.

And I do understand that we kept saying: why don't the insurance, you know, the insurers do this or do that? But, you know, I want to remind us that when the Paradise fire occurred, we had the Merced mutual go under. They weren't prepared for such a big catastrophe. And it's not just keep writing, keep writing. I also think that the insurance companies have a responsibility to stay solvent to make sure that when our consumers need the payout, they're there to do so.

So, I wanted to give the author the opportunity to continue to work on the bill. I'm very thankful that we had these conversations and it was made clear by the author, by our former insurance commissioner here, that this is the intent is not to expand the authority of the insurance commissioner. Clearly not. We don't want to do that.

But the author did agree to continue to work the bill and make sure that some of the language that's problematic with some of the industry and, you know, gets to where he needs to be, but in a way, that again doesn't expand the authority of the insurance commissioner and that we get to where he needs to get. But we did work on Nit with the insurance commissioner. There's a lot of things that we've been discussing here that have not happened, but they're underway again.

It would have been my preference that we put it in writing last year, but the senate was ready. We couldn't get our colleagues in the Assembly to get there. But everything that we've talked about is important. Everything that we've talked about was discussed. Everyone did come to the table. I did feel it was a little bit premature and I expressed it to the author. But again, I wanted to make sure that my colleague had every opportunity to work a bill that he could move forward.

And the commitment was that he would continue to talk to everyone to get to a good place. So, I will not belabor the point. Insurance is complicated. There's a lot of moving pieces and a lot of things that we don't get to see that are happening as we speak. I constantly speak to the insurance commissioner, and he is moving forward with some of those commitments that we agreed to last year in collaboration with everyone, consumer advocates, and everyone else that came to the table.

So, I will move the bill forward as I stated here today. I want to give my colleague that opportunity. But I do expect that there will be more conversations about this bill. And with that, anyone want to make a motion? Motion by Mister Dodd. Oh, I'm so sorry. Would you like to close?

Sure. I know it's been a long discussion. I just want to say, first of all, I appreciate the industry. I think there might be some because there was not one of them who thought maybe there was some posture, you know, posturing or, you know, hey, they were just trying to get more money. I think with all the exits we've seen, like, there was real, real, real questions in the market.

And so my second point is to thank you, Chair, and our insurance commissioner, Mister Lara, for really working on this comprehensive approach that we know that we need. And I think we're doing the steps that we need. And again, that's our belief, is that this is, we're doing this as complimentary. If they're already doing this great, they shouldn't oppose to this bill if they're not doing it great. We just want to make sure that's taken into account.

And I certainly have my commitment to keep working with the industry on this. We already made a lot of changes just even this week, and I think they're partly digesting those changes. But you certainly are my commitment to work. Keep working going forward; if this bill moves forward, I ask for the chance to do that. I respectfully ask for an aye vote.

Item B3, SB 1060, by Becker. Motion is do-pass as amended to Appropriations. [Roll Call]

Thank you. It's been moved by Mister Dodd. Madam Secretary, please call the roll file.

I don't think I have any. Thank you, Madam Chair. Do you want me to start now?

Okay. Are we ready? You may proceed.

Thank you, Madam Chair. I've introduced SB 1229 just to simply let consumers know when their home and auto insurance are using AI to process their application for coverage or filing claims for losses. I want to thank the Committee for your work, and I want to thank the chair for your help as well. And I also will accept the Committee's amendments. As we've all now seen, AI artificial intelligence is a fairly new and rapidly developing technology that many consumers are unaware of.

The potential impacts upon decisions affecting their everyday lives and purchasing decisions. But to the extent customers consumers are aware of AI, a recent Pew Research center survey shows that 52% of Americans are more concerned and excited about the increasing use of AI in their daily lives. And those who have heard a lot about AI are 16% more likely now than they were in December 2022 to express greater concern than excitement about it.

The research survey previous analyses have found that Americans concerned about AI include a desire to maintain human control over these technologies, doubt that AI would improve the way things are now, and caution over the pace of AI adoption in fields like health and medicine. Overall, 53% of Americans say AI is due more to hurt than help people keep their personal information private.

California has a long history of supporting disclosures of information that impact consumers and why this Bill does not tell insurance if they can use AI or not, or how they can use AI. It follows California's well established path of providing disclosures to consumers, but only if insurers use AI to process their application for coverage or filing claims for losses. In short, this Bill is about improving consumers awareness and transparency.

We all know technology advances much faster than regulations, and states are scrambling to get ahead of the use of AI in AI industry, including insurance. While AI holds great promise, and my Bill does nothing to slow the development of AI or even regulate how insurers can use it, it's just consumers are concerned cannot be dismissed or ignored. The National Association of Insurance Commissioners, the NAIC, has responded to this need by developing the NAIC model bulletin on use of AI by insurers last December.

Since then, eight states have already adopted this model. Finally, California. Because California isn't ready yet to adopt other measures relating how insurance use AI in dealing with consumers application claims, my Bill does have a sunset date of January 2030 in anticipation of a larger and more robust conversation that we can continue to have with AI. With that, I respectfully ask for your vote.

Do we have any witnesses and support? So none. Any elite witnesses in opposition?

Thank you. Good afternoon. Good afternoon, Madam Chair and Committee Members. I'm Allison Adey. On behalf of the Personal Insurance Federation of California and the National Association of Mutual Insurance Companies, we are here in regretful opposition to SB 1229. While appearing very benign, this Bill has potentially fallen far reaching implications for an already struggling industry. The industry has been a proponent of ensuring disclosures are clear and meaningful when they do go out.

Last year, we partnered with Senator Glazer on SB 793, which streamlined privacy notifications to ensure that what consumers received was actually something that would be read. With the uncertain landscape that businesses are facing relating to artificial intelligence and automated decision making, we must find certainty in definitions and scope before we're able to find a way forward on disclosures.

With more than 60 bills in the Legislature dealing with artificial intelligence, most of them with varying definitions, and both the California Privacy Protection Agency and the Department of Insurance working on regulations related to artificial intelligence and automated decision making, we fear that there is going to be a great amount of conflict and that the implementation of this could be problematic. The landscape needs to settle before we can engage on how and when disclosure is appropriate.

Additionally, insurers are particularly concerned about the potential scope of the disclosures and any additional burden to their business model. When we have been operating at a deficit for the past few years, additional strain, however inconsequential a disclosure may seem, is still an increase in operating expenses, especially when extended over millions of policies. For these reasons, we are opposed to SB 1229 and respectfully request a no vote today.

Thank you. You may proceed.

Good afternoon, chair and Members of the Committee. My name is Laura Curtis. Thank you for the opportunity to testify today. I'm here on behalf of the American Property Casualty Insurance Association. We align our comments with PIF, and we are also in respectful opposition. We appreciate the author and her staff making themselves available for us to discuss our concerns. We also appreciate the Committee's analysis. However, we are very concerned that this Bill adds more friction to a market that is already in crisis.

As this Committee is acutely aware, California is facing a severe insurance availability shortage. Since 2022, more than half of the state's top 15 insurers have been forced to restrict access to new policies or leave the California market entirely, leaving millions of consumers without access to coverage that they need. SB 1229 would require an insurer to disclose when it has used artificial intelligence. While this disclosure may seem inconsequential, now is not the time to further burden the industry.

The time, attention and operating expenses negatively impact an industry that's already losing $0.13 on every dollar in premiums. More disclosures mean additional length to annual notices that can wind up adding substantial cost when aggregated across thousands of policies statewide. Just last year, as mentioned by my colleague, legislation was passed to decrease the notice requirement for insurers, recognizing that over disclosure often leads to the most important information being lost in the stack.

Broad notification is for likely benign actions further diminishes any meaningful notifications when there is an actual need. We do not believe that this Bill would result in any greater consumer protection and would only add additional strain on insurers. For these reasons, we are in respectful opposition and ask for your no vote today. Thank you so much again for the opportunity.

Thank you. We didn't have a lead witness in support, but I want to give anybody an opportunity in the audience to state your support for the Bill. Seeing none, I will turn it over to those in opposition.

Good afternoon. Sherri Mugh, representing the Pacific Association of Domestic Insurance Companies, oppose the Bill. Thank you.

Thank you. Anyone else seeing none? I will turn it now over to our colleagues. We'll start with Senator Dodd.

Yeah, Senator, I do believe that the opposition brought up some very cogent points about this Bill. One, that on the AI definition, there are a lot of different definitions that we have in a number of different bills this year relative to AI, and there was one, my Bill has a definition that's been approved by the AI working group of the California State Senate. So I think as a start, that might be something that you look at.

And I think there's another lots of other issues, like streamlining the Bill for unintended consequences. I think there's a lot of unintended consequences here. Just the mere fact that they're using AI for decision making purposes in itself doesn't mean that that's an inadequate way of doing it or wrong way of doing it. And I think that there's a number of other different bills that we have going through the Legislature that's going to be putting framework around those decision making points. So I'm not really clear why. I'll listen to your close, but I'm just really not clear why in light of that, that this Bill is really necessary.

Anybody else wishing to speak? Go ahead, Mister Niello.

Thank you, Madam Chair. It truly pains me to have questions about my colleagues Bill. Excuse me. I know that her intentions are certainly very good. I understand what it is that she's trying to do in terms of disclosure, disclosure and transparency. But I have to align my comments with Senator Dodd. And it's really kind of two issues. It's the definition of AI and a Google search of 10 years ago could have been defined as artificial intelligence.

And the use of any sort of electronic processing on the part of a company for any particular purpose may or may not be, may or may not fall under the definition of AI because it's still unsettled. And the other concern is that to disclose to customers that we're utilizing AI to assess you and rates and the like, I'm afraid, has a pejorative connotation to it.

And I'll fall back on comments that I made in the previous Bill, that we have a very unsettled and unstable industry here, and that doesn't help. So that's the concern that I have and I can't support the Bill.

Thank you. Anybody else wishing to speak on this measure? Would you like to close?

Thank you, Madam Chair. I hear you. I sat on this Committee with you last year as well. So I'm very, very well aware of the situation that is happening in the insurance industry. And we have all stood side by side trying to figure out and working with the, not only from the consumer side, but also from the insurance company side to making sure that we can weather this storm that's happening.

So I'm well aware that's going on, but I don't think that that should completely put a stop into what's looking into the future. We can't just completely, because there's a crisis, we stop doing business. And I think, I believe that consumer has the right to know. And Senator Dodd, I hear you. There are a lot of definition.

We did ask and we've been, you know, it's been, we really appreciate Piff and the, and all the others who've worked with us and have been trying to work with us in this Bill. The definition, what we did was we offer and ask for definitions. It wasn't given to us. It wasn't offered for amendments.

And I understand, I mean, they are doing a lot of other things, and this is one thing that they don't need to actually have to spend, should not need to spend the time and so what we did was we looked to NAIC, which is the national associate of Insurance commissioners. They have a definition. So we looked to them and adopted their definition, which has been adopted by eight states, Alaska, Connecticut, Illinois, New Hampshire, Nevada, Rhode Island, and Vermont.

And it's a model that other states are looking at on how they define AI. So I'm more than happy and I'm willing and will continue to work with the opposition as this. I'm hoping that you would consider having this and allowing us to move forward. In terms of a comment in regards to disclosures that was mentioned, I think we're not asking to have a new paper. Yes, I understand that last year we worked on minimizing the disclosure, but I think the consumer should just know.

And adding it into the current disclosure is not even a few words. It's not like you're going to add another page or another paragraph. And so I think, though, at the end of the day, is allowing consumer to know if your rates are going to be calculated by an AI or if you're going to be qualified to be able to buy that insurance, you should know that's from AI. So it's really. It is a simple Bill.

You know, I am committed to continuing to work with everybody and anybody who would like to work with us. And as this, I'm hoping that you would consider allowing the Bill to move forward. And if any of my colleagues here have ideas on if you want a different definition of AI versus Naics, and, you know, we'll also look at Senator Dodd's framework as well to see how that compares to NAiC as we move forward as well. So I respectfully ask for your. I vote.

Thank you, Senator Nguyen, do we have a motion?

I will offer a courtesy motion.

Thank you. We have a motion by Senator Niello. Madam Secretary, please call the roll file item. I'm sorry. Before we go further, I just want to note for the record that Senator Ochoa Bogh had to leave and she will not be coming back. So we have all Members present. So we will close after this vote. You may proceed.

File item two, SB 1229 by Senator Nguyen. Motion is do pass as amended to Appropriations. [Roll Call]

So the motion fails to move forward. Thank you so very much. And since we have all Members present, I will bring it back to our consent calendar, SB 1217, by Senator Glazer. Do I have a motion for consent calendar? Moved by Senator Cortese. Madam Secretary, please call the roll.

Consent calendar. [Roll call].

6-0. This. The motion passes. Once again, for the record, Senator Ochoa-Bogh will not be coming back, so that's the final motion on that. And I will be turning this over to my colleague, Senator Niello, to take over as I will be presenting a Bill. Thank you.

You're going to have to climb over. Good advice.

Well, that was quite the climb.

Okay.

Proceed when ready.

Thank you so much, Members of the Committee. Today I'm presenting SB 1295, a critical Bill that protects consumers from unfair auto insurance cancellations practices by clarifying that consumers have 10 days to cure a non-payment. Under current law, auto insurers are required to provide a 10-day notification for a notice of cancellation to the policyholder for a non-payment. Unfortunately, existing law is unclear regarding the insurer to provide the notification after the default.

With that said, constituents from across the state are being dropped from their auto insurance for even being late one day on their pavement. This mishap often happens due to credit card errors and other instances that's beyond the control of the consumer. With that said, constituents from across the state are being dropped from their auto insurers for not having their auto insurance in place. SB 1295 will remedy this situation by providing clarification of when an auto insurer can send out a notice of cancellation.

This Bill helps ease the confusion of consumers by notifying them of an actual non-payment and allowing them the time afforded by law to cure the non-payment. With me today, we have Richard Otis with United Policyholders, who is the sponsor of the Bill, to testify in support of the Bill. Thank you.

Good afternoon, Madam Chair and Members of the Committee. My name is Richard Otis, speaking on behalf of United Policyholders, which serves as a voice of insurance consumers throughout the State of California and around the country. United Policyholders strongly supports this legislation. It's important to offer drivers every reasonable opportunity to meet their legal obligation to carry automobile insurance, which is one of the most important financial personal protection contracts that exists.

The key components of automobile insurance, bodily injury, property damage, liability, medical payments coverages, protect individual consumers, innocent third parties, and society as a whole. Moreover, auto insurance premiums that are an all-time high for many Californians, and some insurers have reduced options for installment payment plans, mailing, and e-bill payment errors occur, and delayed payments are common.

We appreciate that this Bill will help prevent lapses in coverage and the significant financial repercussions such lapses cause for individuals, families, and the workers who rely on their cars to earn a living. And, of course, importantly for the general public, which expects and replies upon all drivers to carry automobile insurance. Two more important points which were well articulated by the California Appellate Court for the first appellate district. First, receipt of a notice of cancellation should be an unanticipated event that spurs the insured into action.

For example, routine notice that is sent maybe 10 or 15 days before the payment due date does not serve the function of informing an insured that their coverage is in danger of lapsing for an inadvertent error, such as something like a bounced check. Second, as the court also articulated, the insurance industry is well able to protect itself from any possible issue of free insurance by taking appropriate underwriting and billing payment actions.

Ultimately, United policyholders believe it's the general public that will receive the greater benefit of this legislation, not simply the individual consumer whose coverage is extended. We respectfully urge your aye vote in favor of SB 1295. Thank you.

Thank you for that. Now, is there anybody else in the audience in support of this legislation? It's time for the me too testimony. Seeing nobody coming forward. Do we have lead witnesses in opposition? Do we have anybody in opposition? Looks like you're in good shape, Senator. We'll bring it back to the Committee.

Move the Bill.

We have a motion by Senator Alvarado-Gil. Any other comments, questions? Seeing none, we will call the roll. Oh, I'm sorry. Looks like you don't need it, but please feel free to take your closing statement.

In the interest of time, I respectfully ask for an aye vote. Thank you.

Thanks for the help.

File item four, SB 1295, by Rubio. Motion is do pass. [Roll call]

[Roll Call]

The measure is four to two. That Bill is out, and I believe that concludes our Committee hearing. Thank you, everyone, for joining us here today. And we are now adjourned. Thank you.