Assembly Standing Committee on Insurance

Vice Chair, Members of the Committee, welcome to the first policy hearing of the Assembly Insurance Committee for 2025. Today we will adopt the Committee rules and consider one bill. I'd like to start by welcoming my new Vice Chair, Assemblyman Greg Wallace. And we're happy to have you.

And I'd also like to welcome the following new Members to our Committee. Assembly Members Addis, Avila, Ferias, Gallagher, Hadwick, Harabedian, Krell, Nguyen and Rodriguez. Please note Assemblymember Macedo will be filling in for Assemblymember Gallagher today. Let's establish a quorum. Committee Secretary, please call the roll.

[Roll Call]

Okay, having established a quorum, the next order of business is the adoption of the Committee rules. Is there a motion? Second. Thank you. I have a motion in. Second Committee Secretary, please call the roll.

[Roll Call]

Thank you. The rules of the Committee are adopted. Next item is AB226. Assemblyman Alvarez, whenever you're ready,

I'll move the bill.

Second.

Good morning.

Madam Chair and Members of the Committee appreciate the urgency which we are acting today and certainly with a motion and the second certainly want to thank our chair for working on issues of insurance that are so critical for our state, not just today, but for the last year, in her role and also want to thank the Committee staff for the work.

Thoughtful analysis on the bill that we have today. This is a product that we worked on last year and I want to thank again the Committee Chair and the staff for the work that was put into this.

So AB226 is a bill that's aiming to protect the California insurance consumers and promote financial stability to the fair access to insurance requirements, otherwise known as the FAIR Plan.

The bill would authorize the FAIR Plan to request the California Infrastructure and Economic Development bank, the IBank, California IBank, to issue bonds in scenarios where the FAIR Plan faces financial strain due to catastrophic events. Unfortunately, we are in that situation today.

In recent years, California has found itself grappling with profound insurance crisis, leaving many residents feeling Vulnerable and anxious about their coverage options. As insurance premiums continue to soar, a significant number of Californians are struggling to secure affordable policies in the traditional admitted insurance market.

So they are going into the secondary market and as a last resort, entering the FAIR Plan, a state backed option that offers limited coverage. While necessary, the FAIR Plan has its constraints and as the risks of disasters loom ever large, larger, the financial strain on the system has become increasingly evident.

By introducing bond issuance option, that's what the FAIR, this bill would do. We aim to enhance the financial tools available to the crucial safety net ultimate reducing the risks tied to its growing exposure and more importantly, increased cost to consumers.

The Legislative this legislative move allows the FAIR Plan to issue bonds granting the admitted insurance market a more flexible timeline to address and any assessments that may arise after a disaster strikes. Rather than doing so very quickly, this could be spread over the course of time, which would reduce again the assessments to consumers.

By acting proactively, the legislation seeks to prevent a cascading wave of insurance failures that could ensue from a significant disaster, thereby safeguarding homeowners and condominium owners alike. With that now, I'll turn it over to our two individuals who are providing testimony. First, we'll start with Dan Dunmire, President CEO of the California Building Industry Association.

Thank you Madam Chair Members. Dan Dunmore with the California Building Industry Association. I'm here on behalf of a broader coalition of businesses that are dealing with the current insurance crisis in California specifically. As you all know, because you've heard this from your constituents, it's harder and harder to find insurance in this great state.

And as a result, the FAIR Plan, the FAIR Access to Insurance Requirement plan, is now the fastest growing insurance company in the United States for property risk and clearly growing faster and faster in California specifically.

Why we support this bill is because it's very important that this market stabilize, that the household names you see on football games come back to selling homeowners insurance in California. And one way to do that is to stabilize the FAIR Plan.

Right now, insurers have been assessed $1.0 billion since this horrific fires in Los Angeles and we mourn the losses there. And so because of that horrific loss in the $1.0 billion assessment, insurers have to pay that, as the Assembly Member so accurately said, within 30 days. Those are dollars they never collected premium on.

And so that puts more pressure and stress on a market that's very much in challenge. We're very encouraged by the Commissioner's leadership in this space. He's put together a sustainable insurance strategy. But that's going to take time to fully implement and as a result it's very important this measure move forward. God forbid we have another fire.

But according to my historical knowledge of this great state, there's a 30% chance we'll have another one by the end of this year. Just like last year I predicted there's a 50% chance we'd have one this year. I'm sorry, I was right. So as a result of that, this measure is very important for the new Members here.

This is yet to receive a no vote. I'm not taunting you, I'm just saying this has been widely supported and thanks to the Chair's leadership and the Committee consultants leadership, we believe all the issues have been addressed.

There's no opposition and we're here in partnership not only with the author of this Bill and the Committee, but also with the Commissioner of Insurance and his staff. So thank you, Madam Chair. That concludes my comments.

Good morning Chair, Vice Chair and Members of the Committee. I am Andrew Deller, Deputy Legislative Director for the Department of Insurance under the leadership of Insurance Commissioner Ricardo Lara as the proud co sponsor for AB226 insurance.

Commissioner Lara would like to thank Assembly Members Calderon and Alvarez for their leadership and authoring in the California Building Industry Association for co sponsoring this important measure that will allow the California FAIR Plan to access bonds, loans and lines of credit subject to Insurance Commissioner approval.

This would provide the FAIR Plan with another financial tool in their toolbox that they currently do not have today in order to remain stable and meet their commitments to policyholders.

The FAIR Plan was created in 1968 as a last resort for homeowners unable to find coverage in the private market, but today has become the only option for too many Californians.

A stable and solvent FAIR plan as the state's insurer of last resort is critical to ensure a reliable yet temporary safety net that is there when consumers need it and when they otherwise cannot find insurance coverage in traditional or non emitted surplus line markets.

With the increasing risk of climate, intensified wildfires and disasters, if the FAIR Plan's reserves are stretched too thin, it could delay payouts to consumers and create instability in the broader insurance market.

AB226 would provide the FAIR Plan access to capital when needed to ensure the FAIR Plan's ability to continue operating and timely pay consumer claims for these devastating events and to also help ensure that the FAIR Plan can continue to pay claims if there are subsequent events. A growing FAIR Plan contributes to our insurance crisis.

This bill aligns with the goals for the FAIR Plan modernization and Insurance Commissioner Laura's broader sustainable insurance strategy, a necessary part of the ongoing efforts to stabilize California's insurance market while holding true to the spirit and intent of the Landmark Ballot Initiative, Proposition 103.

We've already made progress by raising FAIR Plan residential and commercial coverage limits and enhancing regulatory oversight and improving customer service, but we can do more. While the goal is to reduce reliance on the FAIR Plan through our reforms, we must also ensure it remains a viable safety net when homeowners have no other choice.

The wildfires we're seeing now, like the Palisades Eaton fires in January, are just the latest examples of the growing risk we face. We cannot wait for the next Crisis to act.

AB226 creates a long term security or creates long term security for consumers, homeowners and businesses across the state and is a practical step to strengthen the FAIR Plan's access to resources and protect Californians when they need it most. On behalf of Insurance Commissioner Ricardo Lara, I respectfully ask for your Aye vote. Thank you.

Thank. Thank you. Do we have any witnesses in opposition? Okay. Any additional support in the room?

Thank you very much, Chair and Committee Members. My name is Will Abrams. I'm a wildfire survivor from the 2017 Tubbs fire. And I'm here today because I'm concerned that we're not connecting some dots. That. We're not connecting some dots between the various pieces of legislation that are moving right now.

So what I want to bring your attention to is the fact that we are moving forward with this FAIR Plan and it is really unconnected to the disasters that we're facing. If you look at the reinsurance rates, you will see that they are spiking right after these fires. Right.

And mostly these fires, these catastrophic fires, are being caused by our utilities. Right. And so we have a different set of incentives for our utilities and for our individuals. And we really need to connect those dots. Our. Our investor owned utilities have the California FAIR Plan, so they commit a catastrophic wildfire.

They have a artificial way of propping up their insurance. Right. Individuals don't have that. And we need to make sure these things are linked together so that when there is a catastrophic wildfire that's caused by a utility, that they have skin in the game in our insurance.

I cross examined Jason Wells, the former CEO of PG&E, around these very issues, trying to understand to what degree they are working with the insurers to make sure that we have affordable homeowners insurance. Right. And those connections aren't there. And they really need legislative support to make sure that we are truly all in this together.

Otherwise we have one system where utilities do not have an incentive to make sure we have affordable insurance. Those things really need to be tied together. I would be remiss if I didn't also remind the Legislature that the wildfire survivors from 2015 to 2018 are still awaiting their payments from PG&E. AB.

I don't think this is relevant to the bill. Appreciate the time. Comments but I, I do not think. This is relevant to the bill.

I appreciate that. But you know, part of what's, what is important again is that we're connecting the dots between the legislation and, and if we, we're setting up with this particular bill different standards for our utilities. And I'm, I'm just urging the Commission to, to really think about that and tie those things together.

Thank you. Apologies. Is there any additional support in the room.

Madam Chair Members?

John Norwood, on behalf of the Independent Insurance Agents and Brokers of California and if I may, I just want to indicate that the Legislature granted the California Insurance Guarantee Association the same authority back in early late 1900s and that was critical in the Guarantee Association being able to respond to the 30 workers compensation insurance companies that went insolvent.

So this is very important bill. Appreciate your support.

Thank you Madam Chair Members. Oracio Gonzalez on behalf of California's Business Roundtable strongly in support.

Morning Chair Members. Peter Anel, California Farm Bureau in support.

Good morning Madam Chair Members Skyler Wonnacott. On behalf of the California Business Properties Association and BOMA California in strong support.

Madam Chair, Chris McKeley on behalf of Zurich Insurance in support.

Good morning Madam Chair Members, of Franco. Here on behalf of the California FAIR Plan and strong support.

Good morning Madam Chair and Members. Anna Buck on behalf of the California Association of Realtors in strong support. Thank you.

Morning Madam Chair and Members. Michael Gunning here on behalf of the San Diego Housing Commission, just want to alert the Members that our public housing agencies are also facing these increases and more importantly, the landlords that hold vouchers are also seeing this. So certainly here in support and appreciate the Committee's efforts. Thank you.

Mark Zahner with the American Property Casual Insurance Association in supported of the bill.

Good morning. Good morning Chairmembers. Colin Stadmler with Brownstein on behalf of the Personal Insurance Federation of California in support. Thank you.

Thank you. The FAIR Plan has turned into a leading insurer in this state and we're living through what happens when the FAIR Plan is overexposed in one area and suffers a catastrophic event. This measure is necessary to provide the FAIR Plan as many options as possible to ensure their solvency.

I'd like to thank you, Assemblyman Alvarez, for joining me on this measure. I know how hard you've worked on this, and thank you for bringing this forward again. Would you like to close?

Yeah. Thank you, Madam Chair. Thank you all for the opportunity to move this issue forward. This bill is quite simple. It's about attempting to. We have questions from your Committee Members, apparently we do.

Apologies. Go ahead.

Thank you, Madam Chair, and really appreciate this bill being brought forward. As it was explained, this was attempted last session as well, but just for contextual purposes. Can you please walk me through the order of operations on how this bond is actually issued and how it gets the proceeds and who actually pays it back?

I can definitely answer some components of the questions and I can turn it over to the Department of Insurance because the authority to issue must occur through the Commissioner.

But essentially the idea here is that when there is an assessment, as unfortunately we find ourselves in the current situation with the fires that happened in January, that assessment from the FAIR Plan then gets passed on to consumers. Our goal with the bill is this would be a tool. This does not increase rates.

It does not pass on any of the cost of this tool to consumers. Quite the opposite.

Our goal is that through the bond issuance, when insurance companies or the FAIR Plan are assessed at a level like we are seeing today, that they are able to go and borrow money and spread over many years as opposed to in a short time period what the cost is to them and therefore leading to hopefully no substantial increase in insurance rates which is possible, but at the least a much smaller increase as a result of all the assessments.

So this doesn't change anything of how insurance works today, except it gives a new tool to spreading that cost, which ultimately, unfortunately falls in consumers. And we know how much consumers are already hurting. So that's what this would do. As far as the issuance, I can turn over to the Department to answer that question.

Thank you, Assemblymember Alvarez, for that explanation. And yes, I mean, generally speaking, it is an additional tool essentially for whenever one of these disaster strikes for as on, you know, in order to help alleviate for the insurance for the FAIR Plan. That being said, in terms of specifics, I don't really have that much on me right now.

I'm relatively new to the Department. But I'd be happy to walk through, you know, circle back with your staff to kind of go through the more details of the bill after the meeting, if you'd like. But I mean, generally speaking, it is meant as measure that would provide another tool after such another disaster would happen.

Something to help alleviate having to go through this assessment process. So that's the General message.

Awesome. So then just practically speaking, it's intended to mitigate the expense. Correct. And risk over a broader scope. Correct? Yes. After an event like this happens. Awesome. Thank you. That's helpful.

Assembly woman Addis, thank you so much.

I want to thank the author and ask if you're taking co authors. I'd love to be added as a coauthor and thank Madam Chair for hearing this issue today. I do want to comment. The point is well taken about the IOUs and their responsibility in this issue.

And I do deeply believe it's an issue that Legislature needs to address. For the purposes of today, though, I'll just say I represent three counties. Monterey County, Santa Cruz and San Luis Obispo County. Monterey County is a supporter of this bill. Monterey County has seen a 300% growth from 2020 to 2024 in enrollment in the FAIR Plan.

Santa Cruz County has seen a 530% growth of enrollment in the FAIR Plan. And San Luis Obispo has seen a 560% growth in enrollment in the FAIR Plan in four years. It is absolutely untenable. If this plan isn't solvent, it would be catastrophic for people across California and certainly people across the central coast.

And the comments about the devastating wildfires this year, I think of that. I mean, my heart is so with LA right now and it's another tragic wild wake up call. But we've had these wake up calls year after year after year for communities across California and we can't leave them holding the bag.

And so that's why I want to appreciate what you're doing and your efforts in this area and voice my strong support. We've moved the bill. I'm happy to vote when we're ready to vote. Thank you.

Do we have any other questions from the Committee? No. Okay. Seeing none. They finished closing.

Thank you. Thank you, Madam Chair. And thank you to the questions from. From the Members of the Committee. The bill is really quite simple. It is really about its consumer focus.

It's making sure that individuals don't get hit with assessments as a result of a devastating wildfire or a major flood event or any other incident that may cause the FAIR Plan to be unstable. So this helps stabilize that. Really, we're all in this together and we're seeing that as a result of what happened.

Unfortunately, in Los Angeles, insurance is the insurance crisis. Isn't unique to rural areas or to, in this case, urban areas or to any part of the state.

And in order for us to really get past this together and to stabilize and to provide some relief and not create more cost pressures on consumers, we need this bill to move forward in order to do that as expeditiously as possible. Which is why I thank you for having this and.

And joining, co authoring and having this today. It has an urgency measure, hoping that it takes effect as soon as possible, as soon as it gets to the governor's desk. And for that, I ask for your Aye vote. Thank you.

Thank you. Assemblyman. So we have a first motion by Assemblyman Harabedian and second by Assemblywoman Addis. Secretary, please call the roll.

This is item number one, AB226. The motion is do pass to Appropriations. [Roll Call]

Okay, 13. Ayes. This. This measure passes. Thank you.

Okay.

We're going to leave the roll open for 5 minutes.

Thank you.

Oh, okay. Should I redo the vote? Assembly Bill 226 is passed. Appropriations 12 to 0. The Assembly Insurance Committee is adjourned.