Assembly Standing Committee on Insurance

Welcome to the Assembly Insurance Committee's Oversight Hearing of the California Department of Insurance. This hearing is the third Assembly Oversight hearing to date since the California Insurance Commissioner Ricardo Lara announced his sustainable insurance strategy. Today, once again, we'll receive an update from Insurance Commissioner Lara on the progress of his strategy.

Since the last oversight hearing, the Insurance Commissioner has announced a number of reforms intended to stabilize the insurance market. And I'd like to hear more detail today about these reforms, specifically rate reform, catastrophe modeling, and the most recent FAIR plan modernization. We anticipate the sustainable insurance strategy to be complete by the end of this year.

Hence, we'd also like to hear about what work is left to complete and more importantly, how the Assembly can continue to partner with you as we enter into the new year. I continue to thank you, Insurance Commissioner Lara, for taking on this inherited responsibility which is fixing California's outdated insurance market.

The progress being made is crucial, but I also hope it returns much needed results for all of our constituents because Californians need insurance Members, we're going to take questions following the Commissioner's testimony and without further delay. Insurance Commissioner Lara, please begin when you're ready.

Thank you. Good morning, Members, and thank you, Chairwoman Calderon, for giving me the opportunity to testify and to provide another update on my sustainable insurance strategy. Since the last time I spoke to you, your Committee was in May, we made several, several key advances.

I'm joined by my staff, who are sitting in the audience, Michael Martinez, my Chief Deputy, who you know, and Mike Peterson, my deputy for climate and sustainability. This is my third time, as you mentioned, testifying before this Committee since I introduced my strategy one year, almost one year ago.

And I appreciate the continued involvement from you and the Members of the Assembly, the Senate and the Governor to help us solve the state's homeowners and commercial insurance crisis that we're all living in. Your partnership has really been invaluable.

I'm proud to say that in the past year we've made huge strides towards meeting the deadline I set of December 2024 to implement ambitious reforms designed to stabilize our state's insurance marketplace. I'm very thankful for my Department staff. I want to just take a second to thank him publicly, given all the work that they've done, their incredible commitment to this bold, comprehensive strategy that will modernize our state's insurance market.

As you mentioned, especially with the growing threat of climate change, they really have risen to this unprecedented challenge to think creatively and be critically and critically with consumer protection at the forefront of everything that they do as we inch closer to this finish line under the incredible, aggressive timeline that we set for ourselves, they know their work will not let up.

Will not let up after this calendar year, and that their commitment to fix our state's insurance marketplace will endure until we see insurance written for consumers and business owners who need to, who need it across our great state. I want to address the questions everyone's asking and have continued to ask me up front.

When will our work be completed and when will California start seeing some benefits? And my answer is, we will finish our regulatory. Just missed that. Yeah, good. I'm in charge of workers comp as well, so we can. Right. I want to make sure everybody's taken care of.

Again, you know, we will finish our regulatory work this year in California, already seeing some of the benefits. Starting January 1, 2025 California's insurance marketplace will be open for business in all parts of California. I want to remind us first why we are here.

Massive wildfires are being, are burning just miles from where we sit, fueled by record breaking heat waves and continued dried winds. We also know that allegedly some of these were man made. But if you look at the recipe for disaster, we were already living it.

This extreme heat and these winds continue to provide the perfect spark for these wildfires. I want to speak directly to the communities affected by these wildfires, including Wrightwood, Running Springs, Lake Elsinore, Big Bear Lake, and many others. I have your back and we will be implementing the law that I wrote when I was a Member of the Senate that will keep your home insurance in place after these devastating wildfires.

If you live within the perimeter of the bridge line, airport wildfires or zip codes nearby, you will have one year of protection from the homeowners insurance non renewal. Since 2019, I have protected nearly 4 million people under this law, and I believe consumers should not have to worry about insurance while they're trying to recover within that year. We know this is a temporary protection and this also will help stabilize the market while these reforms we are making take into effect.

So as soon as we can, my consumer services and community outreach staff will hold the local assistance center in the immediate impacted areas of these major wildfires to help answer questions and assist in the filings of claims so that welfare survivors can start rebuilding their lives as quickly as possible.

In addition, it's important to note that my enforcement sworn officers will be working with the local law enforcement of these communities to ensure unscrupulous individuals acting as individual insurance adjusters don't take advantage of vulnerable wildfire survivors during their time of need. I want to turn now to the changes that we are making to help Californians.

We have decades of delayed maintenance in our forest and delayed decisions in our insurance regulations. Under Prop 103, insurance companies have set their rates at whatever level they needed to cover their future claims, but they are not required to write more policies. Let me spell this out. Californians are getting less and paying more.

Will Californians still pay less on the average for insurance than those in other disaster prone states? Those at greater risk pay the most to the point where it is unaffordable for so many. You will not hear this from consumer watchdog. They are underwritten by insurance companies with six figure salaries, ultimately and unknowingly paid by consumers.

Consumers are hurting because they cannot find insurance under the outdated 30 year old rules under Prop 103. Consumer Watchdog wants things to stay the same because only they benefit, not consumers, and that's not acceptable. I'm answering the insurance crisis of today to meet the challenges really of the future. My strategy is intended to fix this major shortcomings in our laws. Let me put our work into perspective. We are creating an entirely new law, new procedures from the ground up, and we are doing it in record time.

Our entire team has continuously engaged in working hard throughout this insurance crisis, and we continue to do our job thoroughly reviewing insurance rate filings. As a result, we have many companies continuing to write and renew in our state, including some of the largest providers of homeowners and commercial coverage.

Although several companies continue to pause writing or are limiting where they write new business today, many more companies are gearing up to file under our regulations in the coming new year. One of those, Allstate publicly testified at one of our workshops that it will open new business in nearly every corner of our state once the work is done. Farmers has had constructive conversations with my Department in order to allow the company to remain writing in the state.

On the other hand, we've also heard from state farm continues to non renew policies while seeking even higher rates. We are using all of the department's investigatory tools to get to the bottom of State Farm's financial situation and make sure that we take all the necessary steps before continuing to ask consumers to give more.

This is the reality of our situation that we are living in. You've heard this before, but it bears repeating. We are on our way of enacting the state's largest insurance reform in 30 years. Since the passage of Prop 103 in 1988. We are compressing decades of deferral and delay into one year timeline, essentially a one year timeline of action, and we are well on our way towards meeting our deadline. Let me now give you a comprehensive update on the various components of my strategy.

The first component, incorporating catastrophe modeling into our rate making the first component of my sustainable insurance strategy is to incorporate the use of catastrophe models into our rate making. As you've heard before, California is the only state remaining which does not allow catastrophe models in the rate making process.

We are instead relying on historical data which is not as accurate and does not account for the strides we've made in mitigation efforts. As I testified before you today, my Department is simultaneously hosting a public hearing right now on my catastrophe modeling and rate making regulations that are in the final phase before implementation by the end of the year.

These regulations are a result of an ambitious year where my Department hosted two public workshops in addition to holding countless stakeholder meetings with insurers, with insurers groups representing consumers and businesses, and modelers to ensure that these regulations will address the current insurance crisis here in California.

That means that by the end of today, since May 2023rd, we would have held four public workshops and a public hearing and a public hearing to get broad public input in our new catastrophe modeling regulations. So we intend to implement the regulations that would do the following things.

One, meet Prop 103's mandate for public review and transparency while recognizing the proprietary material contained in catastrophe modeling, which is no easy feat. Allow more accuracy in rate making and more recognition in mitigation efforts at the parcel and community wide level.

Provide that insurance companies commit to increasing their writings of wildfire distressed properties across the entire state, remove policies from the FAIR plan to go back into the regular insurance market, and ultimately increase insurance availability for those currently unavailable to get coverage except from the FAIR plan.

At this juncture, my team is not only focused on the regulatory phase of these regulations, but also establishing the new administrative processes we need to oversee the smooth and effective implementation of these regulations starting the new year. So we are looking at all participants in the process, outwardly at the insurance industry and the intervener groups, and internally within our Department. This has been an all hands on deck effort involving nearly every branch of my Department.

An analogy that you also have heard me say before that we use constantly is that we're building the airplane as we're flying it. This past week, we posted an opening for our new insurance model advisor, which is the individual who's going to oversee the process of public review of the catastrophe models that will be used in the rate making. So please, if you know any qualified cabinets, send them our way.

And my rate regulation branch, which reviews the insurance company rate filings, is also key to implementing these regulations. So we have made significant hiring strides, which I know was one of the questions you all wanted from the last hearing. This particular branch is ready, going to be ready for January 1. We've hired more than two dozen new individuals, promoted nearly another 2000 more. Two dozen not thousand, hired more than 2000 new individuals, and we've promoted nearly two dozen more.

And while looking to recruit and hire and onboard even more, knowing that the recruitment for public sector actuaries and rate analyst is a very challenging task given the change and the amount that we pay at the state level, my rate regulation branch is also currently undergoing the entire first ever organizational assessment to determine the appropriate level of staffing needed to address the growing rate filing workload demands for a 21st century Department.

This effort is expected to be completed this fall, and it is anticipated that the tremendous amount of, the tremendous amount of positions at all levels will be immediately be redirected in support of the reorganization to meet the expected rate filings workload associated with the strategy and an even growing insurance marketplace with new product offerings given the continued threat of climate change.

In addition to our hiring efforts, the Department has entered into contracts with several firms for actuarial and rate review services in partnerships with my department's rate regulation experts. This has made it possible due to the budget authority that you, all, the Legislature and the Governor gave me. So I want to thank you for that.

And we're letting you know that we're putting that money to work as quickly as possible. On January 1, 2025 we will be ready, and California will be open again for business again in all parts of the state. And I'm expecting insurance companies to do the same and be ready to submit the rate filings to my Department so that we can get our insurance marketplace back on track.

When I spoke to you back in May, I discussed one matter that continues to come up in my department's regulatory workshops, which is the question around a public wildfire catastrophe model. There is no current existing public option for wildfire catastrophe models that we can use today.

And earlier today, I publicly announced a major step forward, which is a major win for us. My Department will be working with higher education experts to create the nation's first public wildfire catastrophe model. Cal Poly Humboldt will be convening a strategy group that will make recommendations for for the steps that we need to take to make that a possibility.

Creating a public welfare model catastrophe will have benefits far beyond the insurance regulation for public safety for the education and careers of future students, for our understanding of how extreme heat and climate change are affecting our environment.

By launching a strategic working group, we are taking the first step in creating the needed momentum, make progress, and engage with experts. I also want to underscore that this is not a quick or simple solution. This is a multi year process that will need to grow from this strategy group. For the public model to be usable, it takes time, commitment and resources. Let me give you an example. The State of Florida created a public model for hurricanes which took five years and millions of dollars.

The model requires regular updates to incorporate new experiences and lessons learned so that it could be the most up to date and current. With my announcement today, we're going to start laying the groundwork for a public wildfire catastrophe model, and its use in the future would allow under our regulations.

There is no doubt we have the technical expertise of our states to develop a public welfare catastrophe model. The questions are, can we find the dedicated funding, build the capabilities to maximize for our public benefits? And do we have the vision and political will to see this through?

Building the tools that we need for a future is really a top priority for our Department and myself and I will again be looking to the Legislature for help during this critical effort. Meanwhile, private wildfire catastrophe models are widely used today and the insurance industry and across the nation in both the rate making and underwriting process.

Even as we develop our own first in the nation public welfare catastrophe model, it is critical that we, for the speed of our reforms, that we move forward in utilizing private models. Now, the second component of my strategy involves incorporating reinsurance into the rate making.

As you know, reinsurance is important for insurance companies to help manage the risk. It enables them to write policies and cover losses. Despite growing threats from climate change, California is one of the few states that does not allow insurance companies to recover the expense of their rates.

The cost of reinsurance is significantly increased in recent years due to the increasing losses of climate change perils, including, of course, in California wildfires. This contributes to insurance companies decisions to reduce new policies or to restrict writing to just the lowest risk policies around our state. That's if we even, that's if they're even writing policies at all.

So my Department plans to introduce proposed regulation text by the end of October to allow insurance companies to take on greater risk in California to incorporate the cost of reinsurance in the rate filings to cover those risks. Since we last talked, we have engaged with an outside expert consultant to provide technical and actuary feedback on the drafting of these important regulations. In addition to meeting informally with some interested parties, these regulations are set to be finalized again in time by the end of the year.

The third component of my strategy involves modernizing finally the California FAIR Plan and actually make it more FAIR for consumers. Madam Chair, you asked to give you a briefing on this, and I'm very proud of the work that we've done.

On July 20 25th, I entered into a breakthrough agreement with the California FAIR Plan to modernize its operations and coverage offerings. This unprecedented agreement with the FAIR plan was targeted at homeowners and condo associations that need to expand coverage, as well as farms, builders, businesses with multiple buildings in the same location.

We need to stop the negative feedback loop where a growing fare plan contributes to the insurance companies, reducing policies in high risk areas, driving even more Californians into the FAIR plan. Pursuant to the agreement, on August 27, the FAIR plan issued its new plan of operation implementing the components of my agreement there are two main parts of my agreement with the fair plan.

Namely, first, its plan of operation establishes a new high value commercial coverage options with limits up to 20 million per building with a total maximum limit of 100 million per location for larger housing and business developments. This is critical.

As we know, prices for businesses continue to skyrocket and they need higher limits if they're going to be in the FAIR plan per building, not per location. The new coverage limit will sunset when the admitted insurers market improves, so we're tying it to the improvement of our overall well being of our market.

The new coverage limit will bring relief to hoas, who I know you all have heard from and others currently struggling to obtain commercial policies in the admitted insurance market, as well as homebuilders, affordable housing projects that currently are stalled because they can't find insurance, and infill developments also struggling to find coverage.

Second, I addressed the FAIR plan's financial stability by creating a sound financial formula formula to protect policyholders from the most extreme loss scenarios. The FAIR plan contains high risk policies, and maintaining its solvency is essential to paying future claims in the event of a catastrophic loss. Under the existing law.

Today, the FAIR Plan may assess its member insurance companies in order to make sure that the consumers claims are paid. While the FAIR plan hasn't had a solvency crisis in 30 years, we are taking no chances.

An exponentially large FAIR plan assessment or series of assessments could lead to escalating spiral of uncertainty and negative consequences for all California policyholders. The changes I have secured will strengthen the FAIR plan's financial reserves and backstop so it can fully and expeditiously pay off future claims from consumers.

Before these changes, insurance companies could ask for approval to pass all 100% of the assessment cost to Californians in an extreme worst case loss scenario. Now, pursuant to my bulletin released two weeks ago on September 3, I have outlined procedures that shield Californians from paying the full cost of in the case of a major, major disaster, pursuant to a bulletin, the FAIR plan will pay out all of its retained earnings, reinsurance and other backstop funds.

First, insurance companies and consumers will share the additional cost, up to 2 billion or 1 billion per line. Homeowners and commercial this is important to know that I will now have to review and approve the assessment on the policyholders before any policyholder pays anything in a highly unlikely event of an assessment.

So we've added some more consumer protections a stable and solvent FAIR plan provides important certainty for insurance companies and consumers who otherwise cannot find insurance coverage in the traditional or surplus lines. This modernization of the FAIR plan is critical to ensure a reliable safety net that will be there when consumers and businesses actually need it.

The fourth component of my strategy is improving rate filing efficiency, something that you are also very keen to reducing unnecessary delays is critical to getting our state's insurance marketplace back on track. It is unacceptable that more than 30 years after the passage of Prop 103, the thorough review of rate filings can take months or even years longer than the timeline that the voters set in law more than three decades ago. The fourth component was accomplished in the release of my bulletin in 2024 on August 9.

I should say my administrative action accomplishes these reforms that were included in the budget trailer language that the Governor introduced back in May and which I proposed last year as part of our sustainable insurance strategy. I issued this bulletin under my existing Prop 103 authority.

To help develop to help the Department conduct a rigorous and transparent review of rate changes applications within the actual 60 day timeline prescribed under Prop 103 more than 30 years ago. As I said, the administrative process would also allow for a 30 day extension if it's needed, still much shorter than the current process.

At the core of my bulletin, I'm strengthening the department's ability to enforce its timelines again that were set more than 30 years ago. Consumers benefit from a thorough and transparent rate review, with more insurance products coming into the market to help meet their demands of greater availability and of that coverage.

My action helps create certainty in the insurance market and holds all parties accountable for meeting the requirements within Prop 103. Those parties include insurance companies who are responsible for requesting the rates they need to pay for the future claims and provide complete rate filings in support of the rate request, so we're holding everybody accountable.

In turn, insurance companies should have greater certainty on their pending rate filings so that they can restore to our competitive insurance marketplace and finally close these dreaded protection gaps that keep increasing.

I also expect interveners to abide by the rules and not duplicate the work of my departments experts and provide meaningful and actual substantive input in the process. And I'm also putting the same expectations on my Department to do a transparent and thorough review of each filing within the timelines laid out decades ago.

I know I keep saying decades ago in Prop 103 to protect consumers, so we're essentially holding everyone in the process accountable. Also, it is essential part of the reform is that my Department will create a data reconciliation tool as soon as the administratively feasible as a check that insurance companies must complete prior to submitting their rate applications to the Department for Review, so that we're all operating under the same data sets, again cutting down the time of these reviews.

In addition, back in February of this year, my Department published a complete rate application regulation that creates clarity in the rate application review process for all participants. This is critical, a critical part of reducing again the unnecessary delays that can cause rate filings to take more than a year. A more complete rate application upfront.

The rate application process then will be ensured that my rate regulation experts have the necessary comprehensive information that they need at the outset to make quicker decisions on the pending rate filings. I'm proud to say that this regulation was submitted to the State Office of Administrative Law last week.

Given that my legal staff has been working closely with OAL since day one. This regulation is on all of our pending as in all our pending regulations, this regulation should go into effect again by the end of the year. Above all these two actions in this fourth strategy component strengthens our review process, which is integral to our ongoing reforms. Let me be clear.

The Department of Insurance, again, is always the public check on rates and market solvency, and we will continue to thoroughly review each of the rate applications filed to make sure that they're compliant with our laws and justified under Prop 103 and that consumers are being protected. The fifth component is transparency and accountability for intervenors.

The last component of my strategy is to increase transparency to maximize efficiencies in the intervener process. Under Prop 103, public participation is allowed in any proceeding before the Commissioner, and while the rate application process has always been open to the public, such as intervenors similarly has not applied for the same process of becoming an intervener.

So my Department now provides public notice on our website regarding individuals and groups that wish to receive eligibility to be recognized as an intervener in order to receive compensation for the participation. It is important to understand how interveners participate in the rate application process and ensure accountability by interveners for their participation.

Again, the goal of this part of the strategy is to address and improve all aspects of the insurance crisis in California under my authority, and that includes my Department and those that interact with my Department, such as intervenors who participate and receive significant compensation for their participation. We have updated our website with the intervener process.

The Department now provides increased public transparency on the intervener process, including how the process works, petitions and orders filed, and how much monies are being paid out to these intervenors that ultimately the cost gets passed to the consumer.

So in closing, we continue to meet across the state with fire chiefs, realtors, the insurance industry, consumers, agriculture groups, HOAs, community associations, and of course with local electeds and our statewide elected leaders and members of both houses. As we continue to conduct town halls around the state, we are moving at the speed of transparency and good decisions.

California's history is littered with too many fast remedies that have not stood the test of time. Prop 103 requires all information provided to Department to be subject to public inspection. We cannot sidestep these requirements because we don't want this much needed reform to be tied up in any avoidable litigation. This is true even under the governor's Executive order of last September. And if we lose in court over process, as I said before, and not substance, all this work would have been done in vain.

Insurance companies and insurance consumers have had strong feedback to everything that we have done now publicly released today, and we recognize that we are continuing, there are continuing concerns and we would not, are not going to satisfy ultimately everyone.

The Governor's Executive order supports my authority to move forward as expeditiously and thoughtfully as possible, and my Department, especially my rate regulation branch, needs to be supported and staffed. As you all mentioned, we made significant strides in that.

In addition, with entirely new procedures being developed from the ground up, insurance companies will need to know what to file, how to file it, when to file it, and when the work is complete in December. So we want to make sure we're already January 1. This is why we need to be fully staffed.

We need those internal processes finalized by January so that we're ready to start accepting the new rate files under the new rules. So I cannot emphasize enough how important that is. And as a large regulatory Department think about effective implementation so that we should not, we all succeeded critical.

And so again, I want to thank you for your time and understand that we are right on schedule to meet our deadline that we committed to you, the Governor and the public to getting all these reforms done by December of this year. And also, Simon, Tennessee be ready to accept and have the processes internally in place to start accepting the new rate files by January 1 so that we can start seeing hopefully some reprieve by mid 2025.

In California, where we have insurance companies riding back in every corner of the state, we'll have the data to be able to monitor that of where insurance companies are going in and also simultaneously what properties are taking out of the FAIR plan so that we get to our achieve goal of getting us to more competition, more availability, so we can eventually draw down the cost to consumers. Thank you.

Thank you, Commissioner Lara. And there's water at the end of the table. That was a long presentation. So right now I'm going to bring it back to questions from the Committee Members. Assemblymember Rubio

Thank you for all of that information back together. Insurance for this. Thank you for putting this together in LA. It only took me 18 minutes to get here, which was incredible. But I really appreciate the presentation and appreciate the opportunity to be able to be part of hopefully a historic process. I do have a couple questions.

I've heard this is my first year on the Insurance Committee, so I'm trying to catch up to everything. I've spoken to the consumer watch group as well, but I have questions about the intervener process because you talked about opening it to the public. I was under the impression that it was already open to the public. So how many intervenors do you currently or are currently registered, if that's the correct term?

How many are actually registered? But we can tell you there's roughly two or three. But I would say 80% of the.

Two or three?

Yeah.

Like two people or three people?

Yeah, right? There's like two or three.

Oh, wow.

And the majority of the interventions are by one entity

Right. Well, then, so then that leads me to the next question. Is that part of the reason why a lot of these rate filings are delayed? Because there's only a handful.

So, the intervenor process, assemblywoman, is very unique to California. No other state has this process. And under our. When we were looking at everything, literally lifting the hood and being, why is it so difficult for these rate filings to get approved on time? What is happening?

So, we had to look at the intervener process itself, which is allowed by Prop. 103. But Prop. 103 also says that when an intervener is ready to intervene, they're ready to intervene day one, not whenever they feel that they can, you know, they want to bring a claim forward or intervene.

And then we would have to wait for whenever they were ready to actually come in and have a conversation. And so, what we started looking at is, one, is there any repetitiveness within these certain files? And some of the grievances that were brought were some of the same grievances that we were bringing within the Department.

And so, we're like, well, you can't take credit for the work that we've been doing. So, we then embarked in, one, how do we cut down the amount of time that interveners, as it says, per Prop. 103?

Also, you cannot replicate the work that my team has been doing because that just, again, elongates the process and you have to be ready to intervene day one, meaning that we're ready to have a meeting so that we could get to some resolution which is already prescribed within Prop. 103.

The other thing that we were looking at is the other issue within the rate process is that we were operating under different data sets, right? So, we needed to really work on a data reconciliation tool so that we're operating under the same data, so that when insurance companies send us some data, we're speaking the same language.

So, we realized we needed to get some money for that, and we got some money from the Legislature to help us get that done so that we're looking at all the aspects. Again, also on our side, we were looking at the fact that we need to hire more people.

After the pandemic, we've lost so many folks, so we needed to get to hiring folks. And so, we're looking at every process, and this is why the bulletin that we put out is critical because now we want to go back to the 60 days which were intended under Prop. 103.

Also, if there's still some issues that we can't resolve, you get an extra 30 days. That just in hearing that we are sending the right market signals to the industry.

Right. Total 90 days if we have to, but just even sending that market signal that we're not going to wait a year, a year and a half, or months to approve these rates. By the time the Department would approve a rate, it would, for a certain risk, the risk was already outpriced.

And we continue to grow this protection gap, so we're never going to catch up to closing it. And so that is also another reason why some of the insurance companies were retracting, because they're saying, well, we don't know when we're going to get approval.

So, we are now committing ourselves, everybody, insurance companies, the Department internally, and the intervenors, we're forcing them to make sure that we're operating under these rules that were written 30 years ago. So now we're holding everybody's feet to the fire.

Well, and that was my, I wrote some questions on the next one was, does the intervener process have specific instructions, and do the insurance companies have the same? I think you just answered, yeah, that's.

Exactly what, that's exactly what we did to clarify under this bulletin that we are committing ourselves.

Well, I imagine it hasn't been an easy process for either side.

You can imagine these are really entrenched interests on either side that have benefited financially from our current process. And so, when you're talking about an entity that's made close to $10 million, I mean, that money has to come from somewhere.

So, what we need to do as a Department is make sure one, that they're actually being thoughtful when they're intervening, that they're ready to intervene. Because we want intervenors.

We also want more diverse interveners, interveners that come from our communities that actually go out and talk to the public, that have members, that actually go out and have town halls, that are actually participating.

And what we've been doing in terms of talking to consumers, because as you know, and as everybody knows, consumers, consumers needs in, you know, Member Wood's district and in your district are very different.

And so, we need, consumers are actually proactively out in the public actually doing the work and not just intervening, coming to a hearing and then billing 100,000 for coming to, like, speak on, you know, of what the public already has a right to do. And so, this is all things that we're looking at now.

And, yeah, we're getting some heat over it, but my obligation is to the consumers of California and getting insurers writing back into our communities.

And that means we're holding everybody, as I said, we're holding ourselves accountable in the Department to meet these timelines and making sure that the insurance companies who have his, who have now under this agreement, have committed to coming back to these communities. We have all the authority we need to hold them to account for that.

And so, this is really a historic time for us as we're trying to undertake this massive insurance crisis that, again, is happening globally. It's happening in every single state in California, but we're feeling it more acute because we are the largest market in the country, fourth in the world.

And so, we need to take bold decisions now, and we're doing it all within one year.

Okay, just one more question. So just so that I understand. How many rate filings versus how many intervenors do you have? So, is that also part of the issue? You have too many and not enough intervenors or vice versa?

Well, what I found out, assemblywoman, when I first came into this position. Cause as we were approving these rate filings, I'm like, well, how many do we have left? I mean, we've. So, insurance companies, because they didn't know how long it was going to take, they would immediately submit another one. And so, we were in this constant loop.

And so, the intervener process, then they continue to intervene, they continue to make money. I mean, we should ask them how much they're going to make off this State Farm settlement, right? So, this is all done under current law and it's all legal.

And so again, this is why it's important for us and for one, insurance companies to be honest about how much rate they need to be able to cover that risk.

And we also, as a department, have to make sure that we're squared, we're doing it within the timeline that is prescribed under Prop. 30, and that intervenors are being honest and ready to intervene day one and not holding these rates hostage until they decide that they want to intervene. And nobody's questioned them before.

And yeah, we're ruffling feathers, but we have to make sure everybody's adhering to these rules that were written 30 years ago. Right? And so, this is what we're doing. And as you said, as I said, there's entrenched interest, and people have been making money off this broken system for years. And so, we're now holding everybody to account.

Thank you.

Assembly Member Gibson, do you have a question?

I do. Thank you very much to our chair as well as to the Commissioner. Thank you very much for coming. I appreciate your articulation of your plan. Right.

And so, certainly, we all have a desire to making sure that we do the best for California's ratepayers and making sure that, one, we bring in those companies who left the State of California and bring them back in insuring people. You made a statement, and I wanted to elaborate on it.

And that is the FAIR Plan should not be be competing against with the other insurance companies. Which I agree with that statement. It's a catch all kinds of program, but it should not be that. And I'm very concerned with that and want to make sure that we do everything we can to address that inequity because people are hurting.

And I don't need to underscore that with you. I think that this body, this Committee understands that in a very personal way. I think about Doctor Wood, who sits my right, and how his community have suffered greatly and not to mention the people who have lost their lives as a result of it.

So, we have to take this in a very comprehensive approach, a very serious approach. And I appreciate you putting a plan together because, without a plan, the people perish. Right? And the vision that goes along with that particular plan. And so, is there any thoughts about restructuring or looking at tackling Prop. 103. One.

And then is there regarding not only the FAIR Plan, but I'm assuming that the conversations you have had, you have also brought those stakeholders to the table, including the insurance companies. Can you elaborate on that a little bit? And then I have a follow-up question for you.

Absolutely. As we've had conversations ongoing with the Fair Plan since 2019 when we first started looking at the inadequacy of their coverage limits, which hadn't been updated since the seventies. And so, we realized we need. One, we needed to up these coverage limits to meet the needs of Californians now.

And then through the conversations with our HOAs, with builders, with, who are, by the way, also insurance consumers. Right? These are all people that consume insurance. If an affordable housing organization, nonprofit cannot get insurance, their project's not going to get built, which is what we were seeing. Right?

And so, again, when we talk about insurance consumers, farmers who are losing their coverage, wine growers who can't store their wine in certain areas, they're all losing their insurance coverage. They're also insurance consumers. Right? So, we. One. We went out and had these conversations of how do we?

Just as the FAIR Plan when it was created after the Watts Riots to provide coverage for south LA when insurers weren't riding, and now have modernized to become the insurer of last resort in Assembly Member Wood's district and throughout the Sierras and eastern San Diego County, you name it, eastern San Bernardino, Riverside, and in Ventura, Santa Barbara.

They need to be modernized now to be able to, like, for example, accept monthly payments to have people able to call you back within a couple minutes, not hours, that we have appropriate coverage limits. And this is why the agreement with the FAIR Plan is historic, because we're literally modernizing a FAIR Plan.

There's other things that want to get done. I think there needs to be a public member on the FAIR Plan that represents the public's interest, not that the insurance companies don't, but I think we need to have that perspective. That's important. And so those are all things that we'll continue to work with.

But this agreement finally provides the appropriate coverage limits, the consumer protection standards that we expect as a FAIR Plan. And now with modern coverage limits that are going to get us through this insurance crisis as we're focusing on homeowners, right, that the FAIR Plan is releasing these properties insurers are riding now in these communities.

And we're going to be able to monitor that unlike we've ever been before, because now we're going to have the data to do that. And then this is why we put a sunset, because by then we will be able to know, okay, the FAIR Plan is being unloaded. Insurance companies are not getting cut.

The homers are getting coverage in these areas. And hopefully, as that stabilizes, there'll be more coverage available for all these organizations. Even outdoor youth camps couldn't get insurance. It's affecting every aspect of our economy. And so, they need some reprieve.

And a modern FAIR Plan that we just announced will be able to cover that for them as we get out of this crisis.

One other follow-up question. Are there any predictions in terms of outcomes for the most vulnerable communities affected by the destabilization of the insurance market? Should we be expecting through this plan the results that your plan is envisioning?

Absolutely, assemblymember. And the other beauty about our reporting requirements now that is that you are all going to get reports as well on the FAIR Plan, depopulization, insurance companies going into these communities.

So, the Governor, you all, I will now have data to be able to see how we're tracking it, because what I don't want is another 30 years to go by and we're stuck with outdated regulations. We want to be able to move as new perils.

We have no idea what five to 10 years is going to look like in California now with extreme heat. Right? And how it's connected to health and life insurance policies or how it's impacting wildfires.

I don't want to get stuck again or have an insurance commissioner now stuck with another regulations that maybe these are going to be outdated by the time we're all done with our service. So one, we're going to be able to have data, which is critical that we don't have access now, which is another big component to these FAIR Plan reforms.

Right? So when, you know, Assembly Member Wood, Assembly Member Alvarez tells me like well, what are the number of policies? I'll be able to actually show you with real time numbers. So that's critical.

The component around the wildfire priority areas, we did incorporate an income check in there in terms of making sure that we don't lose our low-income communities who are as, who are, you know, scattered around the Sierras.

The reality is that many of these homeowners have been pushed out of the urban core and are now living in these communities. And we're also living under this fallacy that somehow, we're just talking about, you know, ski chalets and Lake Tahoe. It is economically diverse.

It is a lot of folks who have been retiring, who have been wanting to move to these areas but have also been pushed out. They also need coverage, right, for their homes and for their properties.

And so, this is why the critical component of our formula of how we identified wildfire distressed areas or wildfire priority areas also has an income component. Cause we want to make sure nobody gets left behind. And that those homes, that insurers are actually also on the hook to provide coverage for those homes as well.

And I want to say thank you very much for that because I'm just thinking about Miss Johnson, who lives in my district about a year and a half ago at a town hall that I had.

It wasn't related, but she was watching on television about the wildfires, and she just said, baby, because, you know, all black mothers say, baby. She said, baby, please don't go up on my insurance. I'm barely making it. And we can't put those vulnerable communities in that position. Right?

People choose to live where they choose to live, and we get that. But we have to do it in a very balanced approach, even when it comes down to insurance companies. A balanced approach. We don't want to drive people in terms of losing or having to make a decision to buy drugs or pay the insurance bill. Right?

Because it's increased, and so we have to do it in a very balanced approach. And I look forward to seeing a very comprehensive plan that you have articulated here today. I also want one final question is, how do you plan to inform the community, Californians of this plan?

Everybody may not see it on TV tonight, but we need to make sure that there is a comfort level that people are feeling, that their government, insurance commissioner, the Legislature, are hearing their voices. We hear them. We see you, and we support you. How is that? If you can articulate that for me.

Let me just further highlight one of the points you're making in your previous comment, which the goal for us, and for me personally, is for people to pay for the amount of risk of where they live. And that, I think, would be the most fair and accurate for everybody. Right?

Depending on where you live, you take on a certain amount of risk. You should be paying for that risk. The second component is, Assembly Member Gipson, no other Department and no other insurance commissioner has gone out to every 58 counties have had multiple town halls in every corner of this state, and we continue to have those.

We're meeting again with. We'll meet with organizations, nonprofits, consumer groups. We partner with United Policyholders, which is an amazing nonprofit who actually is made up of folks that have lost their homes and go out there and talk to communities and help them rebuild.

This is why when we talk about interveners, we need to diversify the type of intervenors and then provide some requirements that they actually go out and do the work before you're going to bill the people of California and have these conversations. One department can't do it alone.

We've done several town halls with mostly every Member of the Legislature, and so we continue to do that work. I've tripled the size of our outreach team. There are now Department staff that are assigned to Members to districts so that we're actually out there going to the town halls. Cause you're absolutely right.

We can never do enough outreach.

But the times that we've met with folks, whether we're meeting with people in Mariposa County, to people in Laguna Niguel who are the same issues and are scared about what's happening with insurance, at the end of the day, when they hear about our work and what we're doing, people turn on the TV and see the fires, they see the floods.

They know that it's risky right now and that climate change is happening, but they just want some certainty that they're not going to lose their coverage every year that they get renewed. So that they can, they want to be able to plan for the future and this is their greatest investment. Right?

So, I hear those stories as well. So, we're going to continue to do that outreach and continue to get out there regardless of, you know, where we are in California. We've really been everywhere and we're going to continue to do so.

Because again, if people don't know what the rights are, if people don't know that through the Safer from Wildfires regulation that we did two years ago, that insurance companies can actually give you a discount for hardening your home, that is critical. That's the first in the nation regulation that we did.

So now we're incentivizing people to do the right thing, which is invest money into hardening their homes. Now we know that there are people that are still not going to be able to afford that.

Hence why we're going to come to you hopefully with a proposal next year to actually provide a roof hardening for wildfire program similar to what Alabama, South Carolina, Oklahoma, South Carolina, Oklahoma just did there's, I mean, Louisiana have done around flooding, and hurricanes. And those are legitimate programs that are really transforming and making communities safer.

So, we're going to be coming to you with hopefully a proposal to get that done. Because no matter what we do, if people cannot afford to do some of the most critical things that they need to do, we're never going to get to lowering the risk and getting insurers writing back in the community, bringing down the cost for everybody.

Assembly Member Wood.

Thank you. Thank you. Mister Commissioner, you. I want to just compliment you. Where we were a year ago and where we are now, we might as well be in another galaxy, quite frankly. And I want to thank you for that.

You've been working on a variety of fronts, and obviously, the interactions you've had with the public and throughout the process is admirable. And I want to thank you. Thank you and recognize you for that. I got notes all over the place here, so I'll try to be brief and try to organize this in some way.

I want to. Yeah, you too. One of the things that in the last year that became more apparent from outreach from people in our community, which these regulations you're doing now will help with the FAIR Plan, was the challenge around affordable housing.

So, we have people that are building low-income housing projects or actually own low-income housing projects, and we're having those policies canceled. So, which puts those companies, the companies that manage them, and these are nonprofits that have been around for years at risk of bankruptcy and failure because of their inability to get insurance.

And so, the changes in the FAIR Plan, I think, are significant there, but even so, the rates continue to be really, really high. You talked about the being able to monitor in real-time, essentially, as the number of people come off of the FAIR Plan.

So, do we have data that shows an insurance company, how many policies they have, how many they drop in a given year, or is that proprietary? Because people in the community, it's kind of anecdotal sometimes, like, oh, yeah, I lost my policy while I didn't. And so how do we know what's really going on in the marketplace?

Or is that proprietary information?

Perfect. I'll have one of our experts answer that.

Thank you very much. You know, on the question of data, there's a couple different sources. Sorry. Mike Peterson, I'm the Deputy Commissioner on Climate and Sustainability for the California Department of Insurance. Thanks. For the data, there's a couple different sources that could be helpful to that.

You know, one, now that the FAIR Plan will be reporting quarterly information on their book of business, that's going to provide a more frequent look publicly at where the FAIR Plan stands.

And that's going to drive one thing, the question about proprietary data versus not within a rate filing that an insurance company brings in the information in that is accessible to the public. For data that the Department collects from all companies, some of that is publicly available.

We post reports, other times it is proprietary, and we use it for our internal analysis. And so, the degree that we can aggregate and provide information to the public, we really have built out our ability for commercial insurance and for residential.

But some of that is proprietary because that's the way the statutes are written and that's how we get the best information to make decisions.

And the reason I bring that up, I worry that some people can't get a traditional policy. They go to the FAIR Plan and then they can't even afford the FAIR Plan. So, they drop it and go to nothing. And so how do you, so having people come off the FAIR Plan may not be the total picture.

They may not be able to afford even the FAIR Plan any longer. And so how we get data that helps you.

Assembly Member Wood. Sorry to interrupt you because we also wanted to make it clear that we are working currently on a clearinghouse of these properties that are fully mitigated. Because what I don't want is, I don't want the insurance companies to then say, well, we couldn't find any homes that are mitigated in the FAIR Plan. No, no.

We have a list of these properties throughout the state. And what we tell consumers when we have this conversation, is this is why it's important for you to invest in mitigation now, if you're on the FAIR Plan, so you could put yourself on that clearinghouse, so you'll be one of the first homes to get off the FAIR Plan and be offered a traditional policy.

And then just from a mechanics perspective, because you talked about the loop that insurers get into, they may have multiple rate filings in progress out there because the process has been so slow. So, let's fast forward to January 2025. We have a catastrophic modeling program in place.

It's not the one we ultimately hope to go to with the public, but we have something in place. We've got reinsurance, we've got all these other things in place. So, what does the insurer expect? And you said mid-2025.

So, there's a process period, but you've got the intervener process, which should be 60 days but could be as much as 90 days. So, does that mid-2025 include all of that? And then the other part of that, what is day one to the intervener?

So, I can't speak for how they decide, but I can tell you some trends that they traditionally will intervene on the biggest companies. I'm assuming they get the most money out of these companies. Right? So not every company is going to get intervened on January 1.

And so, what we want to do is to make sure we have the staffing, the process in place so that we start accepting these applications, so the ones that don't get intervened on, that we're getting out as quickly as possible.

And the ones that are intervened on are now going to be operating under the new rules and regulations that you're ready to intervene day one. You have to come up with new grievances or oppositions to the filing. You cannot just essentially cut and paste what the Department says and say, oh, these are our issues as well.

We don't want that. We want them to bring up new grievances that we haven't brought up and that you're ready to intervene day one. And so no longer, and we started doing this already, no longer just leaving it as an open book until, like whenever you're ready to intervene.

We used to struggle to even get a time to have them meet, have the third parties meet. Now our legal department is very clear. These are the dates you have, or else we're not going to approve the intervention. And so that's proven to cut down the time significantly.

But again, that takes an insurance commissioner to be pushing for this. And so, we're going to commit to doing that and hopefully get that in regulation moving forward so that everybody's adhering to this timeline that was set over 30 years ago. That alone, commissioner, assemblymember, senator. Right?

Everything. That alone in speaking to some of the companies will say that would be revolutionary because it'll allow them to plan out their investments and their market in the state. And so that's why that's critical for us.

And the other reason why the depopulation of the FAIR Plan is critical, because the insurance companies are monitoring this FAIR Plan growth and they're saying, well, we don't know if it's going to end up imploding. We're going to be on the hook for that.

So, we're not going to write new business, in particular the riskier areas, because now we have to save money to make sure that the FAIR Plan is in good shape, although that hasn't happened. But we didn't have the data to be able to confirm if that was the case or not.

Now we'll be able to get that data to see what the actual health of the FAIR Plan is so that we're not just operating under hearsay, we're actually getting data. And to be able to understand how big is the FAIR Plan? How many policies do they have? So that we're able to then monitor that moving forward.

That's why the data piece is the data, and the transparency is one of the most important things coming out of these reforms.

Great. Thank you. And just a couple things that are just more comments than questions. I like the idea of someone from the public on the FAIR Plan. Actually, there was a proposal by the chair to have someone, yeah legislative representative representation on there as well. And I think that's important.

Obviously, people are hugely sensitive to any price increases of anything and recognize that. And certainly, in some of our more vulnerable communities, that the specter of that is even more scary, so to speak, than anything.

I would just say that certainly in a lot of the communities that I represent, the specter of, of having to go on the FAIR Plan and paying two to three times what they potentially were paying for traditional insurance is really, really scary.

And so, for them, a 30% rate increase on their traditional insurance looks like a bargain, like a big-time bargain. And so, while it may not to somebody in another area, I recognize that, but we live in a really, really diverse state, and so it is, how you deal with the complexity of that is a real challenge.

But finally, just once again, thank you for your efforts on this and I appreciate that. And I know my constituents will as well.

Sir, just to close out the conversation with you, we've heard the message loud and clear from folks in your community and throughout the sierras that the last thing they want is to be in the FAIR Plan. They want to get out as quickly as possible because they know it's much more expensive and the coverage is smaller.

And so, we need to get them back into traditional insurance and coverage. And that is what our goal has been since day one. Thank you.

Assemblyman Alvarez.

Good afternoon now. I want to start off by thanking our chair of this Committee.

I think it's important that the public understand that when we have major problems, a crisis like this definitely can be defined as, we must do diligent work, not just the time when we were in Sacramento, but the months when we are supposed to be out, as we are today in California, throughout California, having hearings and having public engagement.

So, I really want to recognize our chair for doing that. I think it's important and for continuing this conversation that started less than a year ago with the Commissioner on how we're going to try to move forward beyond this crisis.

And I now want to turn over and thank the Commissioner for the ongoing efforts, for the ongoing conversation through these hearings particularly, but in other ways in order to keep Californians informed. I really want to specifically acknowledge, Commissioner, your work throughout California.

I represent a more urbanized area, but California is so diverse, something that I've come to learn as a Member Legislature, and you've really taken that to heart. And I think that that matters in the work that you do.

So, I want to start by saying that. At some point, I won't be able to say this anymore, but I'm relatively new to the insurance conversation.

But the reason why I care about it, and you mentioned it, Commissioner, in one of your comments, is because I'm very passionate about housing and I'm very passionate about making sure that Californians have opportunities for housing. And we can pass all the laws we want and reduce regulation to make it easier to build.

But if you can't get insurance, you still won't have a place to live. And that is why this matters to me, in addition to all the other good reasons why this is important to the rest of California.

Earlier this year, we all saw the report from the realtors where 7% of home-buying transactions had to be canceled as a result of lack of insurance.

This is how real this problem is. In my own backyard in San Diego, a project that was again zoned appropriately, ready to move forward to build first-time home opportunities has been sort of unable to move forward because of the lack of being able to get the project insured.

And that is something that I want to ask you about as it relates to the work that you're doing. But that is why it matters to me. That's why it should matter to some Californians even if you don't live in these remote rural areas where it is becoming even more problematic.

It should matter to you if you're raising kids, if you want them to live in California long term. So, I want to start off by asking some of the questions that I asked at a previous hearing because I think it's important to have continuity and try to understand where we stand.

At the previous hearing, I asked about how many rate filings were beyond six-month period. At that hearing, Commissioner, you said there were none. I'm curious as to where that stands today.

Do you want to?

And if you could share with me with the intervener process and without the intervener process, because we know that's very different.

Michael Martinez Chief Deputy Commissioner, California Department of Insurance so just from a big picture, because I have actually been personally involved with a lot of these filings and in partnership with our rate regulation branch experts.

And so just taking a step back because it really is beyond numbers here because what we do, we are seeing this huge pendulum swing because of the pandemic, because we've had, I mean, you've heard it with the global economic recession, because of the inflation of supply, challenges of just, I mean, you name the gamut.

We have seen in the last few years, several hundreds, I would say, of filings that are coming from HO insurance companies as well as PPA, private, passenger, auto, which is both on the personal lines. And we have really dedicated staff to focusing on those filings.

And through the time that we've been again focusing on these filings and what the Commissioner had stated is that apply for the rate that you need. We have been really focusing on having insurers again come to the Department seeking the rate that they need rather than sequential 6.9 percents.

And so as we're looking at the, in regard to, I guess the question that you were having is, let me just look, hold on a Sec, because on numbers, again, we have quite a bit of, so I'd say for HO filings that, and this is just as of we had, we had about, I'd say from 2015 to 2019.

And this is just a perspective that we had 120 to 150 ish filings that were HO filings that were submitted to the Department of Insurance. And about 2020 to 2022, we saw an exponential growth, nearly double in 2020 and then nearly three times the amount in 2022. And so, again, these are just pure. So, for example, again, about 450 ish in 2022 that we saw again for HO filings.

And because of that, we have, and this is an area that I've been really focusing on is, as with the Commissioner at state, is really making sure that we have enough staff in order to be able to tackle which by and large has been a backlog at the Department and being able to think thoughtfully and being able to dispense with these filings as soon as we could and can.

And so by and large, we've seen for going through the rate filings for Ho, for homeowners, it could take about six. And again, it really depends, six to seven months it could take to dispense with the filing. But again, there are some outliers.

There are certainly large outliers that could take, as what the Commissioner said, more than a year because it is quite complex. It could be entirely new modeling. It could be entirely very different underwriting. It could be also what we've said in looking at all the players that are involved under Prop 103.

It could be the Intervener Group is just not ready to meet, may have a lot of questions in order to get more answers to the Department as well, in addition to the insurance company not providing an entirely complete application.

That's just, yeah, I appreciate the response on the reasoning. That's, that's what your response was on the reasons, and we've heard that before, and I think it's important that we remind people why. But I'm asking about actual numbers.

If it's six to seven months is the traditional, how many rate filings have been in for seven months, let's say today?

And that's something that we will have to get back to you. And I think what you are perhaps, because what I'm really focused on is, well, put it this way, we can provide numbers yet without the context of, again, what we are actually tackling in order to dispense with these filings as quickly as we could with justified rate filings, these justified rate increases.

That, that is something that I believe that we need to make sure that we have that larger context, too. So these, the numbers we can, we can follow up and provide because, and we can have the, I can follow up with your staff and we can ask a bit more of what specificity that you're really wanting to tackle. We will do that then.

Yeah, we will do that. I think it's just important. If you recall at the last meeting I talked about either key performance indicators or measurements. And I think the point of this question is really, we need to be very transparent, as you have been, with everything you're doing on what our expectations will be, on your new bulletins and on the strategy that you've outlined, which is, I think the appropriate strategy you are going to over the course of the next two years while you serve as our Commissioner, probably set that up.

But there will be someone new who comes in and expectations might change, might differ. And I think we would do a disservice to all of us and to this time that we've all invested in this, and you more than anybody else, if we get to that point and we don't have metrics of what we expect in terms of even if it is these new, with the new bulletin and the new strategy, the 60 days.

And I think, I just want to underscore to you that I think the fact that the data is still not easily readily available on the current process, not your new process, I don't think it'd be good to continue with that practice is what my input would be.

So I will ask follow ups and you definitely will have outliers. That makes total sense. And there's difference between those who are intervened and those who are not. And so I think we'll ask very specifically about that.

I want to now go on to things that I learned today, Commissioner, which I just want to make sure I'm clearly understanding. So, related to the 20 million per building versus 20 million in aggregate under FAIR plan. Right. Which we've already talked about. We don't need to talk more about FAIR plan and that significance there. I'm understanding that the aggregate now becomes 100 million.

So there's two different types of coverage limits. So for, and this is indirect, as you rightfully mentioned, how it's impacting housing development came from our realtors, California builders and our homeowners, affordable housing advocates, which meant for many of them, for the smaller home developments, especially affordable housing, 20 million per area was enough, but nowhere near enough for our big commercial developments that have multiple buildings or for a big housing development.

And so when we entered into negotiations with the fair plan, they wanted some sort of cap like, okay, we're gonna do, is it gonna be open ended? This is further gonna put a strain. So we all agreed that 20 million per building for those big developments, up to 100 million. So there. And then if you're developing,

Let me, get clarity, 100 million per building or 100 million for their entire complex?

For the entire complex of buildings. And then if you need more, then you can go into the admitted market or until into the non admitted market to cover the rest, kind of to get that umbrella coverage. That was an agreement within the FAIR plan so that we provide some sort of limit. And we were all kind of comfortable saying that this would be appropriate.

And that was my follow up. Did you get feedback on whether that was significant enough to be able to cover as many as possible? Not everybody, but yeah.

And this was in direct negotiations with the Building Association. The realtors got it and our hoas and affordable housing. Appreciate that.

Another thing I learned today, you mentioned bulletin in from September 3. So only a week ago or a little over a week ago, this is related to the consumer assessment. If the fair please correct me, because this is what I understood from your remarks.

I always assumed, and again, I learning a lot here, that under the fair plan, consumers beyond perhaps their very basic word, insurance, that I'm missing, but their deductible would not be on the hook. Essentially for a catastrophic event that's covered by FAIR, that that would be all responsibility of the carriers, insurance carriers policies. And the FAIR plan.

And the FAIR , yeah, FAIR plan. The FAIR plan is now 300 million, billion. Right. In potential exposure and 350,000 plus individual policies. So can you just clarify that? Because I heard something that I had not heard, that consumers would only be capped and they wouldn't. I thought the cap was much more limited to the one I heard you described.

Again, the negotiations with the fair plan was the fact that the ongoing threat of it combusting creates all this fear and contributes to a hardening of the market. So what we agreed on was obviously the fair plan is first on the hook for a major catastrophe to cover its liabilities. Yeah. Its liability and those.

And then the fair plan can assess the insurance company right to cover any remaining. And in the most severe catastrophic event that we hopefully won't have to experience and they still can't cover.

If there's, you know, I always say like if there's three fighters that connect and end up ravaging like something we've never seen and they're still on the hook, then they have to, they come to the insurance Commissioner for permission to assess the commercial policies and the consumers, the insurance consumers, up to a certain amount, like 50-50. Right. But those events haven't occurred.

But just the fact that we're providing a plan for the worst case scenario that we've ever seen provides some stability in the fare plan because currently, again, the fear of just having to sole the assessment on the fair plan and then the affair plan, assessing the industry contributes to this constriction of providing more policies.

Now we have a plan for a long term solution should the worst case, the worst of the worst case scenario happen. Now we clear the process by which they come to the insurance Commissioner at that time, good luck to that person. And they can approve an assessment on commercial policies and consumer policies to cover the remaining of what that catastrophic event.

Just to be clear, when you're saying policies, it's to the policyholders...

Policyholders Correct.

Okay. So I do think this is important. I mean, we definitely hope and pray and everything that we never find ourselves in that situation. But I do think, at least for me, again, I'm sharing what I've learned here is that, that there is potentially under an extreme scenario which we hope never to face.

And I think we just have to be very clear with the public as to what we're getting ourselves into. So I just appreciate you being very clear that in this case, this is what it could mean to a consumer. And then your other bulletin from August 9, I heard you mention, I just wrote a quick note of delay of reviews. Now is 60 days. So that took effect last month. Have there been, so is this, did it take effect? And have there been submissions since then?

So I would just want to be clear for the record that as Commissioner, I don't involve myself in the direct rate filings because of clear delegations. But I'll have Michael. Sure.

Michael Martinez, California Department of Insurance. So, Assembleman, you're seeking, you're asking a question about the August 9 bulletin. This is about the rate efficiency.

And so just from a big picture is that we, this is part of, in conversations with the admitted carriers and with the industry of how can we look back and get back to what voters passed more than three decades ago, right. Of the 60 day turnaround, of the 60 day turnaround review and approval of a filing.

And so the bulletin was released, and it was this desire to put that out there in a public way under the Commissioner's existing authority granted to him under Proposition 103, in order to say, okay, hey, this is in order to provide to the admitted, the regulated community that one we follow through, because this was part of the sustainable insurance strategy, that one we follow through under Commissioner Latta, we are moving forward.

And here it is in a bulletin. And so that was one is be able to actually crystallize a somewhat complex process in writing so that insurance companies know exactly what they can expect once that process is fully implemented.

And reason why that is a bit up in the air in a sense that we wanted to get that out first, because first of all, put the strategy, the policy in writing out there. That was one, that was the big step. And then secondly, gearing up to actually get ready in order to be, to greenlight go.

And from the past set of questions you were having around filings, this actually dovetails. In part of the filings conversation that we will have is that we need to make sure that we have enough staff. And so the rate regulation branch has been about 100 people for the last couple decades, even though the amount of filings has increased exponentially.

So I have, in partnership with our rate reg staff, have rolled up the sleeve to say, okay, how many staff do we actually need in order to hearken back to the Prop 103, 60 days? And that's what the Commissioner had stated that we're doing in a whole organizational review that's never been done at the Department to actually look at what could a good process work. How can we restructure the rate regulation branch?

Because it has been pretty static for the last couple decades and how it has received and kicked out rate filings. And so we are currently undergoing that. And thirdly, is actual the information that's received. We've talked a lot about these rate filings. They're very complex.

And so as you look, since you read the bulletin, you were able to see a data reconciliation tool as soon as expeditiously possible. And so that is something, and a slight aside, I mean, it is an it project in government, and we want to be very thoughtful in how we roll that out.

It will require a good chunk of change, but just know that we want to get that done and out. And we have been having meetings with the regulated community to talk, talk about that, because they are in turn the users of that, in addition to the rate reg branch.

And so we want to make sure, as stated in the bulletin, and so the eyes wide open, the insurance community knows that this whole, the efficiency and the heightened accountability, they know that that won't be triggered until the rate reconciliation tool is up and running. They know full well that that is well underway.

The rate reconciliation tool up and running as soon as expeditiously, as expeditiously as possible, so that we can in turn start the 60 day plus 30 day plus 30 day, because that's the extension. And then which extensions can continue if, as the parties want to continue to engage in those conversations, engage in the back and forth. So at least let me know that. That is the key part of the bulletin that you read. Thank you.

So I did not read the bulletin. The news was from the Commissioner statement today.

And I perhaps was, again, the reason why I asked, it perhaps was incorrectly assuming that the bulletin sort of set new policy, which it doesn't, it sounds like it's just we're getting ready to go in this direction, you should all know, is what the bulletin is.

Well, the bulletin is actually policy, I'd say, at the Department of Insurance. The bulletin is actually under the Commissioner's existing authority in a Prop 103 that is such an incredible amount of voter passed initiative that gives wide latitude or in order to basically run the Department as efficiently as possible. And so the policy is actually out there in the bulletin,

but it's not being implemented yet until reconsidering.

We are getting ready for that implementation with the point, with the IT modernization tool, with getting, the organizational efficiency consulting with getting, and we appreciate the Legislature and the Governor giving us the budget bill language to hire. We've hired over half a dozen property and casualty firms to help us work through the backlog. So that also is a huge component here. So all of these components, it's a big puzzle that we are not wanting to get ahead of ourselves

In terms of timing, I asked about, we actually had again why these hearings are good because we follow up. We did. I asked about this. I remember, I'm doing this by memory now on data reconciliation and that that tool was not going to be the first phase, I think is what it was called until the end of this year.

Yeah, end of this year and next year, the full implementation. And just as our Chief Deputy said, we're in constant communication with the insurers who understand that, you know, that this. Is, that needs to happen where we stand. Okay.

And then on the issue of staffing, I also asked that to you, Commissioner, because I was concerned that the budget was making reductions to all departments and what that would mean to the work that you're trying to do.

And I think I just heard it again, what I had heard from you is that you have the resources, but you're still trying to right size from your 100 individuals and staff for rate reviews to whatever it needs to be. And hopefully in your review of the Department.

That's where I think it would be key to understand, you know, what is the caseload, what is the, what are the measurements to which we should expect to have for each of these staff Members to make sure that the rate filings get reviewed appropriately. So I guess we'll continue the conversation.

Again, I just want to acknowledge you for continuing to be present and engaged with us and certainly the work that you've personally done throughout this entire state. And thank you again to our Chair for really making sure we have the opportunity to do this.

Thank you. And Mister Alvarez, just as when you began your comments, I really took what you said to heart last Committee around performance metrics and making those transparent for the public as well, because homeowners should know and of course the Legislature.

One of the things I took back from that hearing was like, we need to incorporate your thoughts in our willingness to, as we're going to, if we're going to do all this reform, it'll be in vain if we're not going to be able to put some internal metrics to be able to quantify that.

What we've actually put in place are working right, because it's all going to be in vain if we do all these reforms. And yet we're still not able to be able to move quickly to adjust to an ever changing market. So we are putting those metrics in place.

We want to make sure that we take that seriously because I don't want another insurance Commissioner to be here, not being able to have the data, to be able to assess if we're actually being successful trying to meet, because this is not going to be the last crisis around climate change and insurance. And so this is why, again, what you've said last hearing, we took that to heart and we're putting those metrics in place.

Thank you. Well, I greatly appreciate you being here today. I just want to touch on a couple of things. So regarding the fair plan modernization, you mentioned ascensit. Can you just talk about that a little bit more?

Sure. It is a three year sunset. Again, we feel that within those three years we'll be able to have a full grasp of where we're at. Obviously, we want to start seeing change starting 2025, but we also wanted to give some reprieve to the fair plan to be able to understand that once we need to modernize, meet this moment with these new industries and folks that have, who haven't had access to the fair plan, we think a three year sunset, we're going to be obviously monitoring as these changes start being implemented to see if we need to adapt or move or maybe we no longer include a certain industry because now they're having access again, hopefully that's our housing community, which we know we need to build homes, we need to reinvest in the urban core.

And so we've been working with them to make sure that we're all monitoring the progress of the fair plan. So we've given ourselves a three year sunset to look at how the market is reacting to these changes.

Thank you. And then I have to ask, you know, there's been a lot of press coverage about the landslides in Southern California lately. So if can constituents or consumers need information, can they reach out to your office?

Absolutely. We are in, we are in communication with those communities to have people understand what the rights are around these landslides. Again, one more thing that we have to worry about here in California and understanding what their, a lot of it is making sure people understand what's covered in their policy.

And unfortunately, some of these landslides may or may not be covered, but we are helping educate the community around what their rights are in terms of what their coverage is. As you know, everybody's policy is very individualized, and so we need to make sure that they, at the very least, understand what their rights are and what their coverage are, what their coverage is.

Thank you. Appreciate that. And then lastly, I just want to thank you for all the work you've been doing. This is the third hearing we've had, and you mentioned that this has been a big year for administrative action, and next year we're going to be focusing on implementation. So I look forward to getting an update from you on that when that phase begins. And do you have any final comments?

Again, Members, I just want to thank you again for your questions as we really work together to try to solve this unprecedented crisis and that we modernize this regulatory scheme that we haven't touched in so many years, why it's important for us to look at past propositions, look at bills that have been implemented for years to see if it now still meets the modern needs for us as Californians, as we continue to tackle an ever changing environment, know that today's announcement around a public, first of its kind, wildfire model will again put us at the vanguard in California using our CSU system, which is not just going to be Humboldt, it's going to be San Diego State.

It's going to be San Jose State, Cal Poly SLO, and a whole number of them who have really been leaders in this area, along with the UC and some private universities, to get us to a point that we provide a public model, the first of its kind. And if we do this right, can be a standard bearer for all the western states, Alaska and Hawaii, who are all working to try to do something similar. And so again, we're being bold, we're being innovative. We're holding everybody to account.

And yeah, we're ruffling people's feathers, but that's what our job is on behalf of the consumers, is to give them the insurance. That insurance is going to continue to grow and thrive and provide coverage for Californians. As we all now know, insurance touches absolutely every aspect of our life. And so we need to make sure that we're meeting this moment, we're being transparent, we're getting the data. We need to be able to help us understand.

This is why at the national level, we are engaging in a national wide data call so that all states get the data that they need to be able to manage their markets. And that's also been a bit controversial because you can imagine getting all states and territories and islands to agree.

But we all understand that we're all in this together. And so the big markets, the small markets, we're working to address this moment, and we need that data becomes key data transparency for everyone. And those performance metrics so that we don't get stuck in another 30 years of this regulatory scheme, won't be able to meet this need for the future is critical. And so I think we're meeting that moment. Thank you.

Thank you. And I'd like to thank my colleagues who were up very, very early to fly here or drive here, and also my staff and city hall for letting us host this hearing. So now we're going to go to public comment. Please state your name, organization, and keep your comments to two minutes or less, please.

Thank you, chair and Members, we really appreciate the opportunity to be here today, and we appreciate you holding this hearing. I'm Laura Curtis. On behalf of the American Property Casualty Insurance Association, we're one of the major trade associations representing insurers in California. As you know, California's outdated regulatory environment is in need of some fixing.

It is failing and the consumers. Since 2022, more than half of the state's top 15 insurers have been forced to either restrict access to new policies or have been forced to leave the market entirely. I want to be clear. Insurers are committed to the California market.

We want to continue to protect California's most valuable assets, like properties and cars, as we always have, and we want to be part of the solution. But the problem has been a long time coming and there are no quick or easy fixes. We're working with Commissioner Lara and his proposed regulations.

Through the department's sustainable insurance strategy, we support urgent action to streamline the rate making process, better account for climate driven wildfires and catastrophes, and to eliminate the many obstacles that have led to this crisis.

We remain committed to working with the Commissioner, the Governor, and legislative leaders in order to promote comprehensive reforms to ensure all Californians have access to the insurance that they need. Thank you again for your time today, and we appreciate you holding this hearing.

Good afternoon, Madam Chair, Members of the Committee. First, we want to thank the Committee and Committee staff for the work that's been done over the last year, as well as the Commissioner and his team for the monumental lift that they have done over the last year.

This has not been easy work to get done, and there's still a lot to go. The industry has lots of thoughts about the 85% commitment this is not a commitment that is required anywhere else in the country in order to utilize these tools. We do understand California is a unique market, and with that becomes new obligations.

So we are committed to working with the Commissioner, working with the Legislature to ensure that we are able to stabilize this market as soon as possible. We remain hopeful that that will be coming soon. Thank you.

Good afternoon, Madam Chair on the Committee. My name is Bruce Breslau. I guess my title is forlorn homeowner like Assemblyman Alvarez and Assemblymember Rubio. I'm new to this. I didn't really want to know about insurance. My knowledge of insurance was writing a check when the car premium came due.

I live in a town home community, HOA community in Chatsworth, comprised of 290 middle class homeowners on the historic Iverson movie ranch. Invite you all to take a look. Four months ago, farmers pulled out, left us in the lurch.

Because we're an HOA, we couldn't use the FAIR plan, and our broker put us into underwriters who are on the non admitted market. The downside of that, obviously, if there's a casualty and they can't pay, we have no recourse. The other side of that coin is we have. We're carrying 50% less insurance than we did a year ago. The other part of that is our premium ballooned 400% from $349,000 to 1.7 million.

And that is a $4,700 special assessment to every one of our homeowners, young couples, old couples, retirees, people on fixed incomes, and people who are currently unemployed. Still due to the strikes of the last couple of years. I heard the Commissioner say things today. I see no immediate relief when this came down.

And literally, this is just since May and June, I wrote letters to our Assembly person, to our state Senator, to the Commissioner, and to consumer watchdog, as did several other Members in our community. We heard back from three of them. The Assembly Member responded, we haven't heard back from our State Senator.

The Commissioner sent us a templated response, which doesn't apply to our situation. But immediately we heard back from Consumer Watchdog. I was really surprised to hear some of the swipes he took at this organization. I'm looking for, not just me, our community is looking for relief. $5,000 hit annually is something that can transpire. I really appreciate your opportunity here.

Good afternoon. How are you? My name is Gigi Bannister. I live in Crestline in San Bernardino mountains. Yes, it's still smoking out there. I am a former veteran and a firefighter, and I have lived up here, up there for 20 years.

In 2019, farmers called me or canceled me, and I was forced into a California fair plan for fire coverage. I had to buy wrap around policy to cover everything else, and you can't get a fair plan without it. My premium doubled. I figured at least I was covered for something catastrophic if it happened.

But it turned out I wasn't. In 2023, an ... dam broke loose on my roof and wrecked my deck. The wraparound insurer wouldn't cover my 40K claim, and then they canceled me. The Commissioner, Lara, and the Insurance Department are doing nothing to help people like me, and it's got to stop.

I take care of my 79 year old husband, who is ill. He's also a veteran, and I take care of my place. It's all on me. But I do the rest the best that I can to keep the brush cleared.

To mitigate against fire, we should be able to reasonably get reasonably priced regular home insurance if we keep our places safe. No, I wasn't given a discount. Insurance companies should be forced to honor claims or otherwise. What is insurance for? Commissioner Laura isn't doing his job. He's letting insurance companies get away with high premiums.

He's letting them raise the rates but not expand coverage. He's letting them use the secret black box software to price you out of insurance and then not guarantee people, people can get coverage at all. My insurance shouldn't cost me as much as my mortgage, and it's time Laura did something about it.

If I protect my place from fire, I should get a traditional home insurance policy that pays for my deck when it breaks. He needs to hold the insurance company's feats to the fire. Otherwise, get out of the kitchen.

Jamie Court, Consumer Watchdog this is the third hearing you've had with Insurance Commissioner Lara. Two prior hearings, there was no regulation on the table on catastrophic modeling. Now there is, and it's very clear the Commissioner, Laura, lied.

He said in exchange for allowing companies to raise rates based on these secret algorithms and the catastrophic models, he would extend coverage to 85% of people in the wildfire risk areas. 85%. And his regulation doesn't do that. It gives the companies the choice of expanding just 5% or after two years coming in and saying, zero, we tried, but we couldn't do it.

So what we've created is a situation where after two years of talk, we've given the insurance companies what they want, the right to raise rates based on secret algorithms and the right to raise rates based on reinsurance coming next with no guarantee that people are going to be covered.

So what we are going to have next year is rates that are going up substantially and we're going to have more stories because Bruce and Gigi and people like them aren't going to get coverage.

So I ask you to do this if that's what happens next year when all these metrics come in and we are not expanding coverage in wildfire areas and the premiums are going up that you consider the one reform that will work requiring these companies to ensure with a traditional real homeowners policy people who fireproof their homes like Gigi and Bruce.

That Bill twice came before the Committee and twice didn't even get a hearing. And if and if this time next in six months, if all of this pandering to the insurance industry doesn't work, I asked you to consider what is the real solution to this problem. Thank you.

Thank you. This concludes the Assembly Insurance Oversight Committee.