Assembly Standing Committee on Insurance

Welcome to the Assembly Insurance Committee's oversight hearing of the California Department of Insurance. This hearing is the fifth Assembly Insurance Committee oversight hearing focused on the Insurance Commissioner Sustainable Insurance Strategy. We're here to know if the SIS is working. We need the SIS to work, and our constituents need the SIS to work.

And today, once again, we will receive an update from Insurance Commissioner Ricardo Lara. Again, Insurance Commissioner, I want to thank you so much. Every time we ask you to come, you do, and these updates really help us. We're looking forward to hearing more about the impacts of the SIS on California's insurance market.

Members, we will take questions following the Commissioner's testimony and without further delay, Commissioner Lara, would you like to begin?

Great, thank you. Thank you, Madam Chair, Mr. Vice Chair, for inviting me to be here today to provide important updates on our sustainable insurance strategy. As you mentioned, this is my fifth time testifying before the Committee since I introduced our sustainable insurance strategy more than a year ago.

I appreciate the continued partnership that I have with you, Madam Chair, and our great Vice Chair, and with many of the Committee Members present today as we all work to address our state's homeowners and commercial insurance crisis.

Our ongoing partnership is critical to consumer protection and making it important for you to understand my priorities and our approaches at the Department of Insurance. I literally just landed, and the allergies started. It's Sacramento walking me back, I guess. As Commissioner, I have grounded our work in a clear set of responsibilities in the following order.

One, to protect people of California who rely on insurance to protect their lives, livelihoods, and their investments. To the staff who carry out the Department's mission to protect consumers, to the communities we serve, especially those historically marginalized or disproportionately impacted by catastrophes and natural catastrophes.

And to the long-term integrities of California's insurance marketplace, which includes consumers, homeowners, small businesses, nonprofits, corporations, and of course, the industry. My Department has made tremendous strides in these past several months in implementing our strategy. Some groups, you know, namely, I would just say, and I'm going to start pulling punches immediately.

Consumer Watchdog, along with those in the insurance lobby have carved out power in decades old system that rewards gridlock, where being loud has often mattered more than actually being effective. These groups have played off by old rules arguing against reforms while the market is crumbling beneath us.

Watchdog continues to collect millions of dollars in fees without any accountability or public scrutiny. These fees are paid by insurance companies and of course, passed on to the consumer in their rates. Again, adding to already an unaffordable policy for so many Californians throughout the state.

And of course, we see that many Californians continue to be left without coverage. These claims, you know, watchdog claims to speak for consumers. But their own records publicly show they have no members and only serve themselves. They grandstand but don't offer any meaningful solutions. You know, to me that's not leadership; that's the politics of delay.

And my Department and I are confronting it head on, as you will hear more in detail today. Our mission is simple. Consumers must have real choices, and our goal is to rebuild a sustainable, competitive insurance market where insurance companies want to do business and not leave the state—an insurance market where Californians can protect the homes and lives they have worked so hard to build and invested in.

So, for the past 30 years under Prop 103, the insurance companies have no zero legal requirement or regulatory obligation, none whatsoever, to write policies in wildfire distressed areas. Those are the current rules.

This system we know isn't working and it hasn't been working for decades. That is why we are building a new path forward. We just can't talk about affordability without first addressing availability. You've heard me say that oftentimes, you can't afford what doesn't exist. It's unrealistic and dishonest to promise that prices will go down overnight.

But we are building an entirely new system where people can pay for coverage that they can actually get, not just be pushed onto the fair plan with higher premiums and limited protections. And again, here's the bottom line, Members.

Under the last 30 years under Prop 103, rates have risen every single year and insurance prices may continue to rise, but they will—they will be nowhere near the cost of being uninsurable or self-insured.

Just talk to the thousands of Californians who currently cannot find coverage or of losing their home or of losing your valued possessions or of losing your community. Prop 103 requires public inspection of all department...filings. We did not sidestep this requirement. Litigation would have only delayed and this relief for Californians that they need.

And as we completed these reforms last December, we immediately turned to our successful implementation of these reforms. And as a large regulatory Department, we must get the implementation right because that's where we succeed or we fail. And here are the reforms that we are currently implementing in our sustainable insurance strategy.

New catastrophic—catastrophe—model tools that reward risk mitigation, home hardening, and resilience. We're streamlining the rate filing reviews with more accountability and more transparency. We are using forward-looking data that rewards our well safety actions and the thousands, if not millions, of dollars that you all have invested in your budget to actually work on mitigation.

Finally going to take that into consideration. Modernization of our fair plan so it doesn't keep growing as a shadow system and drag our entire market down. So, we're not just rebuilding an insurance market. We have to rebuild trust.

We are working to ensure that no customer is left behind because of their zip code, the roof type that they might have, or where they live. My Department is now moving with unprecedented speed and focus to implement the various regulations and administrative actions of our strategy and monitor the response in the California insurance market.

It's imperative that we do this simultaneously. Not only implement our reforms, but look at how the market is actually responding so that we are able to maneuver if we have to. If we're seeing that certain insurance companies are still not entering certain parts, we need to be able to address that.

More importantly, we'll have the tools to actually see that now for the very first time and last December, I fulfilled my commitment to finalizing our state's largest reform in 30 years.

Again, we achieved this ambitious goal within a one-year timeline, creating entirely new laws and procedures from the ground up in record time while remaining thorough, thoughtful, and deliberate. Because we are not standing still, we are moving forward, and for the first time in decades, insurance companies are responding not to fear, but to a clear, actual strategy.

And Californians are already seeing the results. We've approved homeowner rate filings, sometimes in multiple filings, for every top 10 homeowners' insurance with strict scrutiny.

We have brought the average time to review these rate filings down from 281 days to 71 days and that's less than—and 2023—in one, in quarter one of the year of this year, we approved 17 homeowner filings and have and had 23 pending.

This data now is posted on our website because as part of our strategy, we also have to hold ourselves accountable and have that information available for the public.

So, because of our work, Farmers are—Farmers Company—has reopened several of its coverage lines and has kept its homeowners and new business line open for the past several years. CSAA, AAA, USAA, and Mercury, they are all staying in our state and growing. Allstate says they will return to the market once our strategy is fully completed.

So, now looking forward, we are expecting insurers to start submitting their SIS filings in the next few weeks. These new findings will also include insurers' commitments for the first time ever to expand new writing in our state, especially in wildfire distress areas, as we've already previously defined in other briefings.

My staff has worked tremendously hard over these past six months, and we are now in the final phase of publicly reviewing several wildfire catastrophe models. Our filing instructions are now complete for insurers to include their net cost of reinsurance and in the rate applications, and this information, again, is publicly posted on our website.

So, I want to thank the Legislature for continuing to approve our budget expenditure authority for me to get the necessary contracts in place to help my department's actuaries, analysts, and lawyers with the resources they need to review these files.

As—and as insurance companies start writing new policies towards that fulfillment of their rate filing commitments, we will be closely monitoring and publicly posting progress on our website. So again, everybody knows what—how the market is responding to these reforms. And just as of yesterday, the Fair Plan now is publicly releasing its public counts—policy counts.

This is an important step forward as we continue to make the Fair Plan more transparent and we may come to you with legislative proposals to, to make even more transparency measures within the Fair Plan and make them actually durable.

And we will be tracking the Fair Plan's trends, as you know, as a slowing or reversal of the Fair Plan growth. And that's going to be the most important signal in increased insurance availability across the state.

Again, if we're seeing the Fair Plan diminish in size and scope in certain zip codes and that insurance companies are entering back into these wildfire areas, we will not be able to track that and give you hopefully real time information. So, that's how we're going to measure progress.

And I also announced, again, a formal investigation last month into state farms handling of thousands of insurance claims from wildfire survivors affected by Palisades and the Eaton Wildfires. Californians deserve fair and comprehensive treatment from their insurance companies.

No one should be left in uncertainty, forced to fight for what they are owed, or face endless delays that often lead consumers to give up. You've heard all those stories before, Madam Chair. A market conduct examination is one of my department's most effective tools involving a thorough, fact-based review that typical—that typically take several months.

The Department is currently, again, and we, we took our time because we wanted to go from just, not just from hearsay, but from actual complaints submitted to our Department. And we're also now at a different stage in the claims process for these, for these fires.

This allows us to be more comprehensive in our regulatory review for an examination of this magnitude and importance. We are seeing now insurers are making payment decisions and enabling the Department to evaluate adjuster practices and thoroughly assess state farms methods across a wide range of claims handling.

And this is why we take our time to make sure that we're at this step now of the process. Doing it anytime earlier wouldn't have yielded any type of information because at that time, they were still just paying, you know, additional living expenses.

We have to take our time to get to this part of the entire claims process. This examination will assess whether State Farm has compiled—complied, I should say—with California's consumer protection laws and claim handling laws and will help determine if further reforms are needed as natural disasters increasingly disrupt insurance market actually across our country.

While there are no national standards for insurance claim handlings, they are—they can be—vague and inconsistently be applied especially during large scale climate disasters, especially as the ones that we just experienced.

I also want to take a second to thank Assemblymember John Harabedian for his partnership with me on this particular endeavor on the Eaton Fire and helping me flag trouble patterns that my market staff are now going to be investigating, such as the frequent—frequent reassignment—of multiple adjusters with little continuity of communication, inconsistent management of similar claims, and inadequate record keeping or information sharing among claims teams, among multiple other complaints that we are investigating.

I will not let any insurance company exploit this crisis or walk away from Californians who have paid their premiums and played by the rules. So, let me give you some numbers of where we're at, up to date.

Today, we've helped more than 12,000 survivors with wildfire insurance questions and issues. We've recently posted on our department's website—as of last month, insurance companies have reported more than 38,000 claims filed with more than 35,000 fully or partially claims paid, totaling more than 17 billion paid to consumers. One of the more than 38,000 claims filed, to date, around 1,000 complaints have been directly filed with us at the, on these claims, and we have been able to recover a little more than 60 million to date to for Southern California wildfire survivors on these complaints alone.

And we can expect this to only increase as the settlements are being reached on primary rebuild of total loss homes and businesses. Again, we're starting to see now these claims mature more. We're starting to have more, more of the price containments of what the home had before the fire. So, but I also recognize there's more to do.

We have launched a multi-state coalition to tackle underinsurance issues, something that was kept brought up by this Committee. Together, with New Mexico, Colorado, Oregon, and Washington, we are gathering data and building our understanding of insurance gaps and how to reduce the prevalence of policyholders being underinsured after a severe fire, something that all these states and their consumers are experiencing after their fires.

This is one of the many ways we are partnering with other state regulators in Western states to strengthen our capacity to help Californians by empowering us to learn from our collective experience in the aftermath of major wildfires.

Additionally, my Department and I continue to encourage wildfire survivors that feel claims that are not being handled properly and quickly by their insurer to file complaint with my Department so that we can assist them directly and gather important consumer complaint data for stronger actions, if necessary, even to include in our ongoing market conduct examination.

Again, this is important so if consumers have a complaint, have them file that with our department. It's easier than for us trying to track down, you know, hearsay, or surveys, or so forth.

We need real complaints so that our lawyers and our analysts can actually look and start an investigation, if we need to expand our market conduct exam.

To give you an idea of what we are seeing on the ground, in terms of the consumer complaints, they involve delays by adjusters and responding to claims and ultimately, paying these wildfire claims. By fire, most of the prevalent complaints—and it's not going to be a surprise to anybody—are smoke damage claims.

So, today, we, as we all know, we are experiencing the aftermath again of the worst wildfires in California's history. One, it's unique because it's an urban fire that devastated entire neighborhoods and spread toxic soot and ash across a wide region.

In the past, we've experienced massive fires including in Santa Rosa and in Paradise, but we've responded with new insurance rules and laws to improve payment claims and cut red tape, including sponsoring many of those law that are now laws that were championed by many of the folks in this room. But we have never experienced something of this magnitude across such an urban area.

And what we are seeing is that over the past 30 years, there have been no common standards for paying smoke damage claims. The result of this is that people are forced to go back to homes that may or may not be safe. This is why we have to take actions to protect people now and for the future.

So, we recognize that smoke damage is a serious growing concern for many Californians. I ordered insurers to fully investigate and pay legitimate smoke claims in accordance with California law. I sent a letter to the Fair Plan directing them to act, like act just like every other insurance company and fully investigate and pay these claims and to the best practices.

My team continues to demand accountability on that, for the Fair Plan. And I have to say too that the lack of consistent public health standards for smoke damage has led to a lot of confusion, delays, and uneven treatment for homeowners after these fires. And I also want to be very clear, this is not an insurance issue.

This is a health and safety issue first and foremost, and needs to be led by experts to help us understand what a fully remediated home would look like. This is why after months of trying to figure out who the experts are or what are some standards that are out there, even international standards—we couldn't find any.

And this is why I decided to, you know, take the bull by the horns and create our smoke claims and remediation task force and my Department, and we just announced its members yesterday, including actual consumer advocates, state and local public health experts, fire safety experts, smoke remediation specialists, industrial hygienists, and insurance representatives.

The task force goal is to recommend where standards are needed and which agencies must be involved in creating and enforcing them. We expect that the task force complete its work in just a handful of months and bring recommendations back to me so that we can have real solutions. Again, stay tuned.

Those might be possible laws that we might need to, to be drafting as well, because we cannot wait another 30 years of this delay. Californians deserve to return to their homes that are safe, not to be left in the dark or forced to clean up their own toxic smoke damage on their own.

This is such a prevalent issue that we often hear consumers say that they have rather—much rather have lost their home in a fire than have to deal with the smoke damage claims with their insurance companies. That is not right. And so, we're going to look to change that.

Several other states are looking at other ways of trying to come up with standards. Colorado passed a study bill, as far as I'm concerned, that we know there's still no funding by the Legislature to pay for that. So, we just went ahead and created a task force, give us recommendations.

We're going to give you a couple months, come back to us, and then we'll engage the Legislature if we feel we need to do either new laws or if we could do this regulatory or what other agencies can do regulatory reforms so that we have finally some, some smoke remediation standards that could, quite frankly, be a model for the rest of the world and for the nation, since none of those exist.

On another note, more than three decades ago, Prop. 103 established a role for public participants, known as interveners, to represent consumers' interest in the Department proceedings.

In my opinion, that's the job of the men and women of the Department of Insurance. These interveners may participate in the Department spending rate applications and rulemakings and are eligible to receive compensation if they have made substantial contribution to these proceedings and presented relevant issues, evidence, and arguments that are independent from those raised by the Department staff.

For decades, any payment of compensation to these groups is made by insurance companies and ultimately passed on to consumers through rate increases or fees on policyholders' premiums. We are the only state in the nation that has this process. The intervener process has not been comprehensively reviewed in over 30 years—that's until now.

My Department has been reexamining the entire framework as part of our sustainable insurance strategy, our broader effort to modernize and increase accountability for every stage and every participant in the rate filing process, because every dollar cost the consumer that much more for their policy.

Over the last 10 years, the Department has awarded nearly $10 million in compensation to interveners, with primarily one intervener group receiving nearly all of this compensation. Closer examinations of this intervener process has reeled several concerns so far. In many instances, interveners raise issues that are not relevant or even duplicative of my Department's own staff review.

These actions do little to contribute to the resolution of these pending rate filings and in fact, can help exacerbate the challenges that we have in seeing our states—that we're seeing in our state's insurance market.

Going forward, my Department will no longer grant intervener petitions that raise issues unrelated to the actual rate application, going back to the letter of the law of Prop. 103. Moreover, compensation will not be awarded unless the intervener can clearly demonstrate a substantial contribution to that proceeding, consistent again with the letter and the spirit under which this process was established, under Prop 103.

Regulatory reform is needed to improve transparency, reporting, and oversight in this area. At the same time, the Department must also be accountable.

For example, I was made aware that the Department's independent Administrative Hearing Bureau had failed to timely review and issue proposed decisions in approximately 25 pending intervener compensation petitions. Again, this backlog is unacceptable. If interveners fulfill that responsibility and contribute meaningfully to the Department's process under the law, they should not be left waiting years for payment.

This also discourages other intervenors or other consumer—actually consumer groups—to participate in the intervener process, many of them who are not going to be able to wait years to get payment.

To address this issue, in December 2024, I reassumed authority over the review of these petitions, as the twice elected head of the California Department of Insurance. I am pleased to report that all of the outstanding petitions will be resolved by the end of this month. Under my strategy, I have prioritized accountability for all parties.

As I told you, Madam Chair, Mr. Vice Chair, all parties. That includes insurers, intervenors, and my own Department. Everyone involved must adhere to the timelines and responsibilities defined in the statutes by the regulation. This means everyone, including the insurance companies, run Fair Plan. For decades, the Fair Plan has functioned as the insurer of last resort for many Californians.

However, its expansion has revealed deep flaws in a system that has never designed to bear the weight it now carries today. Under Prop 103, to bypass high risk areas, insurance companies have left a growing number of homeowners and business owners with no option but costly, limited Fair Plan coverage. That's going to end now.

My top priority is for people to have more choices in a competitive market and for those unable to find coverage right now, that the Fair Plan needs to provide full services and benefit payouts that consumers deserve, quickly and fully. I have also increased the Fair Plan transparency by using my executive authority.

Effective yesterday, the Fair Plan is sharing information with public policymakers and the public about its current condition and size. Remember, right after the Fire, everybody was wondering if the Fair Plan was going to implode. Even the two ladies in front of me at the grocery store and I'm like, do you have information that I don't have?

And so, this is finally important to note that we need to have public transparency for the Fair Plan. Other states that have recently created their own Fair Plans are much more transparent than ours that was established in the 60s. We need to change that.

This is real time data that is critical as we work to get people out of the Fair Plan and back to regular market. My Department is currently investigating Fair Plans' handling of smoke damage claims from the Los Angeles and previous wildfires, again to resolve consumers ongoing complaints and help people get back on their feet and recover as quickly as possible.

And finally, I'm creating greater stability to support our market expansion, despite opposition of these insane entrenched interests who benefit from this broken system.

Insurance companies are pulling back from our market over fear of an expanding Fair Plan, which Bloomberg News called the "hidden crisis." Last year, I acted to stabilize the market conditions with an executive action bringing clarity in the situation of a worst-case scenario where the Fair Plan does not have the resources to pay all its claims.

We've just had that worst case scenario in Los Angeles. And last week, my Department asked the judge to reject a lawsuit that does nothing to address the state's insurance crisis. This lawsuit, the latest filed by Watchdog, only hurts homeowners, small businesses, and nonprofits who need access to insurance options.

These are the forces of delay and distraction that have caused this crisis and I need your continued support to finish this job. Again, we're proud to support AB 226. That's going to give the Fair Plan access to more credit and more financial tools that they need to stay strong and in, in the incoming weeks, my staff's expected to file the Department's ongoing financial examination of the Fair Plan, including its compliance with my Department's 2022 Operational Assessment Report.

We call, we call for significant changes in the Fair Plan's governance, operations, underwriting, claims handling, risk management, consumer services, and financial planning strategies and policies.

So, we look forward to sharing with that with all of you when it becomes final. And in closing, again, we need bold, lasting reform and the political courage to stick with it because it is the right thing to do, regardless of all the political attacks, all the nuanced investigations.

This is all tactics to slow the work of the Department. Do not be fooled. But we are ready, and we have been ready, and we're ready to meet this moment. Again, we owe it to every firefighter who defended a neighborhood, every senior who wants to retire in peace, every family who dreams of owning a home.

We are building a modern insurance market for them. This will be, again, the hardest work that I do as California Insurance Commissioner, but it's also, I think, going to be the most meaningful and the most impactful moving forward. Appreciate your time. I look forward to your questions.

Thank you so much. That was a lot. We always appreciate you being here. So, before I turn it over to my colleagues, I wanted to ask, how—can you tell us how intervener compensation is determined?

So, the intervener compensation is once—usually it happens to the biggest companies because that's where the intervener can get most of the money.

They come in—previous to my Administration—they could come in, intervene, literally cut and paste some of our own issues that we have with the file that we're working on, and then delay the entire process until they were ready to, to negotiate.

That's unacceptable because that, then by the time, that rate is actually approved, it no longer meets the risk that it's intended to cover. And that's why you see such backlog in these rate files. We've cut those down.

We've been very aggressive just sticking to the letter of the law with Prop 103 that says if you're ready to intervene, you're ready to intervene day one. We're not going to allow you to, to, you know, stymie this process because we're in a crisis. We don't have the luxury of waiting. And again, we're saying you can't.

But with these reforms that we'll be make, we may, we will be making public pretty soon, it's going to be a regulation that's going to be transparent, hold them more transparent, accountable, with clear guidelines of what it means to actually be part and be a meaningful participant in the rate files.

Right now, it's so vague that anything could be considered intervening, and that only delays a process which only ultimately hurts consumers. And if we're awarding taxpayer money to these interveners, they also should be held to the same transparent regulations and reforms that all of us have to do. And just as we do in our state budget, right?

And so, it's really bringing some controls that are long overdue in the intervener process.

In terms of how much they, the compensation, how, who decides that, or is there a?

That is determined by, by one of our independent judges, and now, we are bringing that back and we're having our legal team review. So, they, they, they send us pretty much a billing information and we review it to see if it's consistent with their actual intervention and if they've had meaningful intervention through the process.

Before, it was essentially just rubber stamped.

Okay, thank you. Now, I'll turn it over to my colleagues. Assembleywoman Petrie-Norris.

Thank you, Madam Chair, and thank you, Commissioner Lara, for being here. And I do want to commend the way that you and your team are attempting to tackle this crisis. This is—you've had to confront some brutal facts and very inconvenient truths.

And I think there are stakeholders who want to believe that we can sort of wave a magic wand and make all of these challenges go away. Sadly, we are fresh out of magic wands. That being said, I do have some questions about the implementation of the Sustainable Insurance Strategy.

I think, as noted in the conclusion of the Committee briefing, based on the complaints that we're continuing to receive from our constituents and it doesn't feel like it's made an impact on the market. So, you did outline in your comments some of the pillars of the Sustainable Insurance Strategy.

Can you help us to understand what are the upcoming milestones for the implementation of that? And at what point will you say yes, check the box, done, we've implemented?

Yes. You and I are, we're lockstep, cause I have a whole team that I, every morning, I'm like, when is this happening? So, we are now, I guess they're moving into the implementation phase despite these mega fires that we've had and despite being challenged in court at every move that we make.

And you know, we're being pulled in all different directions. And so, by this month, by the end of this month, we will have all our catastrophe models approved and we will be able to start accepting new rate files under the new reforms. That's why you haven't seen really the market correct itself yet with these new tools.

Because we had to make sure that we reviewed and approved these catastrophic rate these catastrophe models first so that we've been working with the top three modeling groups to get that done. That'll be done—that'll get done this month, as we said, in July. We're on schedule.

And we also are expecting the insurance companies to start submitting their new rate files to be able to use these two new tools with the guarantee that they're going to come back into these communities.

So, you'll start seeing definitely by no later than the end of this year, starting of next year, you'll start seeing more correction in the market. But like I said, some of these companies already coming in, but we need them to come in into these wildfire distress areas. So, again, we have been communication—in communication—with the industry.

We're like, we've done the work, you better be ready to file these new rate files because you know, what we don't want is for we're ready—we're open, we're ready, and nobody's filing these rate files yet. So, we've been very, very aggressive telling the companies, we have been working with you, you need to start getting this ready.

And now, we have the consultants, the actuaries, the staff, will be ready by the end of this month.

Okay. And I think you said that you're anticipating that the first insurers will submit their SIS filings in the next few weeks. So, once those are submitted, how long will it take to approve?

Because we're also anticipating Consumer Watchdog to intervene on these files or potentially even try to challenge this part of it in court. So, we don't know.

You know, we, we're anticipating just continuing to have folks try to stymie the process, but that's the reality that we face, that if we have a rate file and it gets intervened, we're going to do our due diligence to keep them, you know, by the letter of the law of what Prop 103 says, to get this approved as quickly as possible.

Of course, once it meets our scrutiny in the Department and it meets, you know, what, what we're looking for and then, get those approved. And so, but that's just the reality of our system here in California. But at least we are now being much more aggressive with what does it mean.

And this is why we felt it's important to get this regulatory reform started as well, so that we could create kind of those safeguards for what does it mean to intervene, right?

And if we're going to have interveners, have interveners actually be folks that represent the communities and many of them don't intervene just because it takes so long to get the compensation. So, only the one organization that has mastermind this entire thing is the only one that could get millions of dollars off it.

But it's time for us to create a level playing field and create some clear definitions of what does it mean to actually intervene. And that's what we're doing through the regulation.

Got it. And subject to, I guess, forces beyond your control, for your team, what is the expectation or the goal that you've set for them for turning around these filings?

Well, we've, we've already cut the time significantly from a couple hundred days to like 71 days, which is, you know, it's a 71 day decrease already. But we're staffed up, we're hired, we have outside support now, which we didn't have. So, we're ready, we're going to be ready for these rate files to get them done.

Okay, great. Thank you.

Assemblywoman Ortega.

Thank you, Commissioner. It's been, you know, a rough few months, to say the least. I've been sitting on this Committee for two years now and I know at the beginning, we were talking and preparing and had a lot of reports and conversations about the worst-case scenario and then the worst-case...

Scenario happened. And I must commend your office for doing an incredible job under very difficult circumstances. I do have a follow up question from the last time you were here to give us an update, and that is related to the modernization of their FAIR Plan.

And under that plan or the process of that, your Department approved the ability for insurance companies to recoup 50% of the $1 billion from the FAIR Plan. And so the question that I'm asking is related to the questions that I get from my constituents consistently, which is how much is this going to cost me? So do you have an update on when we're expecting this to take effect and how much are we expecting constituents to pay as the rates go up?

Right. Well, the insurance companies have two years to recoup to recoup that loss. And we don't have a set figure or number just because, one, not everybody has an insurance policy or the insurance policies are so varied depending on the type of policy you have or the type of coverage.

And so I can't give you a hard number, but I'll tell you that the FAIR Plan is in a much stronger place as we enter wildfire season to be to better protect Californians throughout the entire state, regardless of the most devastating fires that we've had to date.

And so I can't give you a figure, but yes, this is another part of the reality. And these are current laws now where rates continue to go up without any guarantee of coverage. We're changing that entire scheme. I can give you more. We can, I can get my financial solvency team who talk to the FAIR Plan every two weeks to make sure that they're on par and give you some, see if we can maybe carve out some specific data.

But it's just hard because, one, not every consumer has insurance, and some of them might be underinsured, some of them have different types of policies. So there's not one set number I can give you, but we can try to see if we can come up with something.

I think that would be very important as we continue this process, especially when it comes to accountability and transparency. It's really difficult to continue to tell constituents that call into our offices asking, you know, and how much their bill is going to be when they're barely making it.

Absolutely.

And so yeah, whatever you can do to make sure that we have some assurances and have some visibility into what that's going to look like.

Yeah. Now, and just to add to that, Assemblywoman, I don't think you were here when we said there are now the FAIR Plan posts on their website their financial condition and the amount of policy they have. That's something that came out strictly out of this Committee when you were asking me for more transparency.

And we're actually doing a review. We might, after our investigation, we might come back to you all with additional transparency measures that we need for the FAIR Plan. Like I said, states that have just implemented their own FAIR Plans are much more transparent than ours. That was done in the 60s.

We're doing a thorough review to make sure, again, that the FAIR Plan is as transparent as possible and that consumers understand. You know, it's the same thing that happened after the Santa Rosa fire, the Camp Fire. People in Southern California were calling in, asking, how much is this going to cost me?

And so I will just tell you, we're all in this together. These fires are happening throughout the entire state. We need a healthy FAIR Plan that I think we now are getting on the road to being there. Now let's get them to be transparent so that we all understand what the financial condition of the FAIR Plan is and if it's ready to meet the next catastrophe. And so those are the balances that we're trying to do here.

Assemblywoman Addis.

Well, thank you so much, Commissioner. I really appreciate the amount of time that you have spent with this Committee as well as your collaboration with other insurance commissioners. I think it really speaks to the power of the states and how we can solve problems.

I just have a couple questions, and I think you've done a lot of work. But if I'm a homeowner and I'm thinking about the CZU fires in 2020 in Santa Cruz County, I'm thinking about the 2025 fires that were devastating in Los Angeles. What's different now, knowing fire season is coming?

Like, as a homeowner, what would I experience differently now, and then what will I experience differently? Or a renter, but, you know, somebody who's going to live through these fires. What's different now compared to 2020, compared to January 2025? And what's going to be different once the sustainable plan is in place that I'll experience just as a, you know, insurance consumer I guess we'll say?

I think we are in a much better place, one, given the leadership you all have shown with the critical investments around mitigation. Obviously there's more to do because we're still seeing that consumers are, one, you know, they're not getting the credit for the work they're doing.

We're also now investigating and looking at the discounts that we started. As these discounts are maturing, we're seeing that they're starting to grow because now insurance companies are taking more account and understand that mitigation is key. So over time, we always knew that the insurance companies were first going to be hesitant to give big discounts.

Now we're starting to see that grow because there's now a common knowledge that these work. We also still have to get money in people's pocket to do the most expensive part of the work, which is the roof, protecting people's roofs, the shutter, and the surrounding community. Why Assembly Member Lisa Calderon's bill is paramount.

And I think we have to, you know, we have to just bite the bullet and invest in that. What you're going to see in this month is you're going to see insurance companies file their rate filings with the, under the new rules where they get to use these two tools.

And now we get the guarantee that insurance companies have to grow in these areas. So. And we're going to be able now to have the technology to be able to show you where insurance companies are writing in your district, which is something that, as a former Legislator, I would have loved to have had.

And so we'll be able to track that and monitor that so that we also can see if it's not happening, why is that not happening. How are we engaging with the industry to see what are, what are characteristics in this specific zip code or county that you still feel you can go in and write?

And then we could adjust our policy or look at what we can do together with the Legislature and the industry and consumer groups so we'll be able to do, we'll be to have that data now. And so I think you're going to start to see insurance companies coming back into these communities under the new rate files.

We're going to try to get them out as quickly as possible. Like I told Assembly Member Petrie-Norris, we feel we're ready. You have given us the resources, we have the staffing, we have the outside consultants, we have the actuaries, we have everything in place to accept these new rate files.

You know, once we finish these catastrophic model reviews and which we're on schedule to do this month, if that doesn't happen, I'm going to come back to all of you and be, we need to get insurance companies to start, you know, putting in these rate, putting the rate filings in. And so that's what we're monitoring so far. We have, we have assurance from all the big insurance companies that they're preparing their rate files. So you're going to see progress now.

We're going to go from implementation to now seeing real progress and getting these rate reviews done as quickly as possible given the parameters of Prop 103, utilizing of these new tools, being able to get more data to you. And we're going to be more transparent with the FAIR Plan so that you understand exactly what the financial conditions of the FAIR Plan, how many policies they have. So this is all going to be new information that's going to be available to you.

You're going to also now be able to see how much money are the interveners making, what they've made on a specific case, and how that money is being factored into also the overall price of the policies. Because every single penny goes, you know, it gets charged back to the consumer. Right. As we know.

So we're holding everybody accountable. And I'll be able to give you and tell you how many rate filings we have, what's the average length under the new filing system. So hopefully you're going to get more information. It's going to be much more transparent, much more real time to help assess and address these issues.

And like I said, we have a group of states now working on the underinsurance issue, working with the RAND Corporation, working with a couple researchers down in San Diego to get us to figure out how we do that. Then we're going to have also hopefully in a couple months, some statewide standards for smoke mitigation, which is going to be massive.

And we'll be able to figure out what state agencies are the ones responsible for enforcing these so that we have clear guidelines for insurance companies to follow and that consumers understand that when they go into a home that is going to be safe and not as opposed to this patchwork of different rules or county, different county health officers have different suggestions.

So we're going to bring that all together. Again, it took us a while because we were trying to figure out, one, do they exist? Are there, who are the experts in this field? That's clearly not our expertise. And seeing an absence in that, we just brought everybody together and we're going to try to get that. We will get that done in a couple months.

Thank you for that and thank you for previewing my question on underinsurance. And could you talk a little bit more about how that does fit in with a sustainable plan or will dovetail or parallel. My big concern around underinsurance is right now we're having the very important conversation around can people get insurance or not? My big fear and what I've heard from folks on the Central Coast is they can get insurance, but it's simply not enough insurance.

And the Chronicle had a huge article around insurance companies using certain databases or systems that were predicting what level of insurance people need and that they were very faulty, and that we've had these huge fires in the past where people simply did not get the kind of insurance, didn't have the insurance that they needed to be... even if they asked for it and were willing to pay for it.

That's part of our investigation looking at... So we've gotten some of the complaints. Again, if you know folks that have gone through this, please file a, actually file a complaint with the Department because, as we're doing these investigations, we use that real time complaint process to review those.

And we're also looking at, for us, it's also important when all this money gets collected to help support communities that are underinsured or not insured. There's no data to understand who are these people and who are these folks and where they live. And so that's a big thing that we've seen in Colorado, New Mexico, Washington, and Oregon. And so we just, we're going to compile our resources, do a data sharing.

And our teams have been meeting now for a couple months to try to work on, one, can we work on some sort of either model law at the national level or what regulatory reforms we need to make or what data do we need to ask insurance companies to help us triangulate how we understand who's insured, who's underinsured. And so we're looking at we got the best minds of these five states coming together to figure this issue out that I know is very important in your community.

Well, thank you. And you've been very receptive to this conversation. We have a town hall with you virtually coming up in August. I also want to thank you for that because I know in addition to the time that you spend with this Committee, you're out there with the 40 million people of California trying to get the message out. So we look forward to that. And thank you.

Thank you.

All right. And again, thank you so much for being here. We always appreciate you coming. I think it's helpful for us to hear where you're at and all the great things you're doing to help Californians. Is there anything the Legislature can do to help you?

Get our bill package done. Get them funded. I know it's a difficult, having come in 2010 under a massive budget cut season, I feel you. And now it's where the magic happens. But these are important investments that we need to make. We can't make the same mistakes we've made in the past.

We also have to have a conversation, as I know we finally are doing some strides around CEQA reform, that we also look at local planning, building code upgrades, and how all of that impacts, not just fire, earthquake, sea level rise, extreme heat, and atmospheric rivers when it comes to inland flooding. So I would just say we can't look at just one solution now for one peril. We need to look at one solution that can try to address multiple perils. That because unfortunately, that's where we're heading.

We're going to head to a point where we're going to have a fire in a certain part of the state, we might have an earthquake in another part, and we might have a certain part, you know, flooding. And so again, why Assembly Member Ortega's question is critical. Is the FAIR Plan... Is our FAIR Plan going to be able to meet a moment like that when multiple catastrophes are happening? And this is why we need to modernize it, have it be transparent, so that we're all coming in eyes open on what we need to do to fix it.

And so I would say those are some of the things that we're starting to look at internationally, nationally. But this bill package, like I said, if we had that bill that we introduced a couple years ago, the FAIR Plan would have had additional access to money. So let's do the hard work, what you all are doing. So again, just let you know we'll be ready by the end of this month and we'll be able to track these changes and give you some real time information.

Thank you. And I also want to recognize, you mentioned internationally, the work that you've been doing has been recognized internationally. Because somebody told me, while California leads the world in wildfires, you guys are also doing a good job in trying to navigate through that. And so I think all the work you've been doing the last since you've been in office and helped create the SIS should at least be acknowledged because it is around the world. Thank you.

Appreciate you, Chairwoman. The world is definitely watching on how we respond to these wildfires and how we modernize the largest insurance market in the country, fourth in the world. So there's been a lot of conversations with a lot of countries who are trying to do the same thing.

Yes, well, thank you so much, Commissioner. We appreciate your time, and thank you for always coming back when we ask you. He's never said no, and we appreciate that because we know you're really busy.

Thank you. Appreciate your time.

You're welcome. We'll now take public comment. Please just state your name, organization, and provide a brief two minute remarks.

Thank you, Madam Chair. I'll be even briefer than that. But good morning, Madam Chair and Members. Seren Taylor on behalf of the Personal Insurance Federation of California. We do want to recognize the Commissioner's leadership and the hard work of all the stakeholders because there have been many involved in developing the Sustainable Insurance Strategy, or SIS.

We view this as a comprehensive initiative to address the state's insurance crisis by, as the Commissioner noted, modernizing the rate approval process, incentivizing risk reduction, and promoting a more reliable insurance market. It's not been an easy task. It's taken almost two years to get all the pieces in place, and there's still an outstanding component related to the approval time frame for rate filings. That's expected at the end of this year.

However, again, as the Commissioner talked about, we have several PIF member companies that are already engaged in making the SIS rate filing process, and we're optimistic that the SIS will result in a more stable insurance market and provide greater insurance availability across the state. That's our shared goal, and PIF is committed to being a full partner in that process. Thank you.

Hi, Madam Chair and Members. Denni Ritter here on behalf of the American Property Casualty Insurance Association. We just want to express our appreciation for the continued focus of this Committee and the Legislature in ensuring that the market difficulties are being addressed head on. We really do appreciate the focus, the questions from this Committee.

I also want to express appreciation to the Department for all of the work that they've put into this over the last few years. We do have several member companies that are excited to utilize these reforms. And it sounds like maybe at the end of this month they'll have access to that.

And so we look forward to that. And we would like to emphasize that the success of the Sustainable Insurance Strategy, I think there are two factors that will really be really predictive of here. One would be the timeliness of the rate filing process. You know, it's really important that insurers are able to get the rate that reflects the risk that they're covering. And I think that'll go a long way to addressing some of the availability concerns that your constituents are experiencing.

And the other factor is the solvency and the rate adequacy of the FAIR Plan. Having, ensuring that the FAIR Plan has enough in reserves to cover its exposure and that it is priced in a manner that it is not competitive with the admitted market is really going to be crucial for the success of the sustainable insurance strategy. And with that, we just thank you all for your patience.

There's been patience all in all directions on this. It has taken us years to get into this situation, and it's not going to be fixed overnight. So we do appreciate some level of grace there. And we are committed to the Sustainable Insurance Strategy and success of that here in California. The insurance industry needs this to work as well. So we look forward to working with you all on that. Thank you.

Madam Chair and Members and Mr. Vice Chair. Just want to say, Dan Dunmoyer, President and CEO of the Personal Insurance... Excuse me. Of the California Building Industry Association. I just wanted to express appreciation first to you, Madam Chair, for the focus of this issue. On behalf of the business community, that's the consumer community, this is just a really profound issue.

We have stopped building condos in the State of California because of this crisis. We estimate that 30 to 40,000 condos were not built in the last two years because of the lack of commercial habitational risk insurance. This is the most attainable and affordable insurance and consumer homeowners product that we have in the state, and that's on hold.

So we applaud the Commissioner for his leadership on the Sustainable Insurance Strategy. We appreciate the Legislature support and you, Madam Chair, both Mr. Alvarez co-sponsoring, co-authoring AB 226 to address the financial strength of the FAIR Plan is very important.

On a very positive note, we've been working closely with this Committee and the Commissioner on expanding the FAIR Plan to include more coverage for condos, for apartments, and for legally defined affordable housing. We believe that's going to happen on July 26th of this month, which will allow us, we hope, to come back into this market and to serve consumers. Last thing I just want to say in the context of this issue, we are the consumers of this product.

So we really respect the Commissioner's concern about those who claim to represent consumers versus those of us who write 100,000 checks a year. That's how many new housing units we build through our membership. And when you buy a home, as you all know, you have to have principal, interest, tax, and insurance.

So this is a really key component of the business success of the state, the housing success of the state. So again we applaud you and your leadership, Madam Chair, and also the Commissioner, and we urge that the Sustainable Insurance Strategy be fully and completely integrated as quickly as possible so consumers have choice, so housing continue to be robust.

And especially with the Governor's leadership and Legislature's leadership on housing in the last 48 hours, if this could all come together, this is very, very important for the State of California and for the home building industry, for the consumers who buy the product, and the consumers who live here. So thank you.

Madam Chair and Members. John Norwood on behalf of the Independent Insurance Agents and Brokers of California. We too want to congratulate and thank the Department of Insurance for all their hard work done the SIS program and for this Committee on your focus. Our members are very, very anxious to start being able to place insurance with private insurance companies once again for property insurance.

We also just want to comment on the transparency the Department's talked about and the Commissioner with regard to tracking companies that are making filings and how long it's going to take to get those filings approved. I think there's going to be a lot of scoreboard watching by our membership, but we really appreciate the fact that that ability is going to be there for them to review that information. So thank you very much.

Thank you. This completes the business of our oversight hearing. We're adjourned.