Assembly Standing Committee on Insurance

[Roll Call]

Thank you. We have a quorum Assemblyman Alvarez. Whenever you're ready, you can present on AB 2996.

Thank you, Madam Chair. Appreciate the opportunity to talk about Assembly Bill 2996. I'd also like to thank you and your staff who have been working diligently on this from the moment of introduction, appreciate all of the communication and the work and the feedback it. AB 2996 would authorize a fair plan to request the Ibank to issue bonds to enhance the solvency of the FAIR plan and authorizes the Ibank to issue those bonds.

As someone I've said it before on this Committee, I'm new to this Committee and certainly to the issue of insurance, the insurance space. My initial interest in this issue is on the issuance, the insurance crisis as it impacts the production of housing. That is an issue that I am very familiar with and I work on very passionately, especially for first time home ownership opportunities by way of condominiums.

Condos are the most affordable home buying option for consumers in my district and probably your districts as well, and present a present, a critical pathway for first time home ownership opportunities for Californians, an opportunity that I think we all really care about. Unfortunately, among many other challenges that we've heard about before in this Committee, one of the challenges facing the housing crisis is the ability to obtain property insurance in the admitted market, which, again, you all know too well.

This is how this project really came to me. It's a result of something happening in my district, in the Otay Mesa community, a border community of California, California looking to build 5000 units to resolve the issue. I was encouraged to see the Department of Finance and the FAIR Plan Association announced last year, obviously, that they would expand the commercial insurance coverage from 20 million per location to 20 million per structure.

Although that is an important step, it also puts an already overexposed fare plan at significant financial risks. As the Bill states, as you know, the fair access to insurance requirements plan, a fair plan was always intended to be an insurer of last resort that provided the property insurance. And as again we've seen here time and again, it's become the go to given the difficulty in obtaining insurance in the voluntary market and the risk of climate driven wildfires, it has grown beyond its initial scope.

So again, that's how we landed with this idea, because we know that we are one significant wildfire away from the fair plan draining its reserves to cover policyholders, which would trigger an assessment charge on carriers. An assessment would result in insurance insurers in the admitted market having to cover the FAIR plan's obligations.

So by utilizing the bond market through this Bill at the Ibank, AB 2996 extends the payment due date from 30 days to potentially 10 years to assure the admitted market that one wildfire won't for potentially won't force them to immediately come up with billions of dollars within a very short period of time to cover fair plan's losses.

By authorizing the FAIR Plan Association and the Ibank to utilize the bond market to provide the admitted market a gradual repayment process, again, up to 10 years, AB 2996 increases the financial tools available to offset the increase in exposure that threatens the fair plan that we are all worried about. There are some concerns that you have seen in form of a letter and maybe we'll hear from testimony from the FAIR plan that we acknowledge.

Two in particular that they, that I want to make sure you know that we're addressing first raise. The first concern is around who would repay the bond. The intention of this Bill always has been and will continue to be that insurers would pay the assessment for any bonds and any interest, not policyholders. This is the same way it is handled today in case of a direct assessment.

The second concern the fair plan fairly raises, which is the concern that the process to sell bonds would take too long. Approximately, they estimate six to nine months to provide the immediate relief necessary to ensure solvency in case of an emergency. And that is something we are hoping, with their help, to address to reduce that length of time.

Certainly agree that we want to continue to work with the fair plan to establish a short term mechanism like a line of credit, is what they have suggested to us to provide enough relief to allow for the bond process to be effectuated much more quickly. So we're continuing to be committed to work, particularly with the FAIR plan, to address these issues. With that, I'd like to turn it over to the building industry Association for some testimony.

Thank you. You can begin. You have two minutes, please.

Thank you. Madam Chair, Dan Dunmoyer, President and CEO of the California Building Industry Association. We're the sponsor of this measure. One, I just want to draw your attention to the really good analysis and comments that were made here. The key thing to understand is this Bill is a very important Bill, but it is not the solution to the insurance crisis. It's a recognition, as Assemblymember Alvarez said, of the problem we're facing with so many people coming to the backstop mechanism known as a FAIR Plan.

So the solution to this is what the Commissioner has outlined. It's called a sustainable insurance strategy. His sis with the implementation of that strategy, you will bring, we believe, the insurance market back to its normal place with State Farm, Allstate, Farmers at all coming back in and giving consumer choices. In the meantime.

This is an important Bill because the mechanism that insurers are basically allowing to happen is for the fair plan to grow, as the Assembly Member said very quickly, from 50 billion in exposure to $350 billion in exposure. What this Bill does is it minimizes the negative impact if there is a major fire in the next, probably two to three years, because that's how long it will take for the full efforts of the Commissioner to come to bear.

In that meantime, if there is a fire and if it runs out of money, this will be a valuable tool to minimize the negative impact of the growth of the fair plan and the assessment on insurers and eventually on consumers through higher prices very quickly. This concept of using this thing called the Ibank, the infrastructure bank of California, has been used effectively in the insurance mechanism.

When the workers comp market actually atrophied in 2002, the Ibank issued about a billion and a half dollars in bonds, and it served to make sure that every injured worker in the State of California under a workers comp policy was paid. So it's a tried and tested tool. Again, the Bill is optional. The fair plan may use it and the Commissioner may approve it. So it's basically, it's an insurance policy for the FAIR plan. So glad to answer any questions, Madam Chair, Members, I'm glad to respond to any concerns.

Thank you. Do we have any additional support in the room?

Good morning, Madam Chair and Members. Skylar Wannacott, on behalf of California Business Properties Association in support

Brandon App, representing Personal Insurance Federation of California, in support.

Thank you. Do we have any primary opposition in the room? Any public opposition in the room? Okay, I'll bring it back to the Committee for questions. Okay.

I want to start by thanking you. I think, you know, as I may have mentioned in the last hearing, that we had, over half my city was canceled in recent days. And they're all having to go on the fair plan. And as we see communities forced onto the FAIR plan. In numbers like that, we know the fair plan becomes more and more precarious, if you will. And I think this is one of the few bills we're seeing that's actually addressing the crisis head on.

And so I really appreciate that. I am really concerned about whether the fair plan will withstand a catastrophic fire. And so I think you looking for solutions is really critical. I was happy to hear that the insurance federation was here because I was wondering how they felt about this, since they're the ones on the hook paying for it. But it sounds like they're supportive from what I'm gathering.

Getting a head nod back there, because one of the things I know we're hearing from insurance companies is that having to carry all this burden on the fair plan is making their businesses precarious as well. So we need to be careful of that because we don't want more non renewals than we already have. But I do think it's really important that we make sure that whatever comes out of this is something that will stand up, right.

That won't hurt the insurance companies such that they continue to leave and also ensures that the FAIR plan withstands a catastrophic event. But I hope this goes hand in hand with what we're seeing happening at the Insurance Commission, which is the desire to pull people off the FAIR plan.

I mean, I think there's a real effort to get more of those people back into the insurance market, and that's a really positive thing. As I'm sure we're all aware, the fair plan is much more expensive than the market. And so I think this needs to go hand in hand with depopulating the fair plan and ensuring it has a sustainable model.

Right.

But I think more work needs to go into it, and I hope you'll work with the Ibank and others to make sure that this is actually a workable scheme, because I think at this point it's not quite there yet, but I'm happy to support it to make sure that it continues the conversation on what I hope will be a real solution in this space.

Thank you. Do we have any other questions for the author? Oh, someone would, yeah.

Thank you to the author. Truly, this is out of the box or outside the box, and I appreciate your thoughts here. Do we have any idea of what the size of a bond would look like or how that would be determined?

I don't think an amount. That is some of the concerns, and I do want to acknowledge the fair plan concerns that I also mentioned in my testimony. In terms of the mechanism and ensuring that whatever is created as to the concerns of our colleague that just spoke are addressed. And so that's not a specific that I think I can tell you for sure what that would be.

But the intent is, as our colleague just mentioned, is to try to, instead of a very immediate short term exposure, extend that exposure over more years, all again on insurers, not on policyholders.

Yeah. So I can imagine that insurers would be much happier to know that they might have potentially up to 10 years, even with interest, to be able to take care of a loss. So very much appreciate that. But I just want to point out too, and thank you Mister Dunmoyer, for pointing this out, that even with the reforms and changes that are coming, it's going to be two to three years before we see a lot of this really have significant effect.

We're going to see pieces of this that will gradually affect the market for insurance. But anything we can do to continue to push on the insurance Commissioner's office to expedite these things as quickly as possible is what is going to help with the relief that consumers desperately need right now. So this is a crisis. We need that agency to act like it's a crisis. So with that, I'm happy to support your Bill today.

Thank you. Assemblymember, would you like to close?

Thank you all. This Committee, and certainly the chair and the staff are really diligent about trying to help solve this crisis. This is only a tool that hopefully, in the absence of the next couple of years of what we all expect should happen, will be available to help with this concern. And with that, I respectfully ask for your aye vote.

Thank you. Secretary, please call the roll file.

[Roll Call]

The Insurance Committee is adjourned.