Assembly Standing Committee on Insurance

Good morning. Welcome to the Assembly Insurance Committee's first outcomes review oversight hearing. I'd like to thank Speaker Rivas for allowing this committee to take another look at important legislation this committee's worked on.

The purpose of this outcomes review hearing is to assess and improve the outcomes of specified laws. Today, this outcomes review hearing will focus on Assembly Bill 3012 authored by former Assemblymembers Wood and Davies.

Daily. Excuse me, not Davies. This measure was signed into law in 2020. While this measure had many accomplishments, this outcomes review will only focus on one provision, the creation and implementation of the residential fair plan clearing house program.

This committee recently held an oversight hearing on the fair access to insurance requirements plan, California's property insurance safety net, where once again, it was highlighted that the clearing house program is not working as intended.

Simply stated, the legislature created the clearing house program with the intent of depopulating the FAIR plan and providing a pathway for policyholders to return to the voluntary market.

I'd like to hear more today about what obstacles the clearing house faces and what the clearinghouse faces and what improvements can be made to ensure it works as intended.

On our first panel, we'll hear testimony on the implementation and oversight of the FAIR Plan Clearinghouse program.

I'd like to welcome Kyle Belleville, Vice President of product and underwriting from the California FAIR Plan, and Josephine Figueroa, deputy commissioner and legislative director from the Department of Insurance.

Good morning, madam chair, members of committee, committee staff, Armand Feliciano representing the FAIR plan. Thank you for inviting the Fair Plan to present today in the clearinghouse. It's a timely discussion considering the role of the FAIR Plan today.

I'm I'll be assisting today just to answer legislative inquiries on the clearinghouse. And joining us today is Kyle Bell Belleville, FAIR Plan Vice President, project and underwriting. Thank you, Arman.

Thank you, Madam Chair, Members of the committee, and, committee staff. We've prepared a presentation that about the clearing house, and I'll take you through that now. So California FAIR Plan is California's insurer of last resort.

Provides basic property coverage regardless of property fire risk, ensuring Californians have access to the peace of mind they deserve. It's intended as a temporary insurance safety net for those unable to procure insurance in the voluntary market.

And we encourage maximum use, in obtaining basic property coverage through the normal market. Clearing House statute today requires California FAIR Plan to develop a clearing house program to help reduce the number of existing FAIR Plan policies. Sorry.

And provide opportunity for thank you. And provide opportunity for admitted insurers to offer homeowners or commercial insurance policies to FairPoint policyholders.

And ensure that participates in the clearing house program is required to sign an agreement with the association that sets forth the terms and conditions for the insurer to offer homeowners and commercial policies through the policies listed agent or broker of record.

The clearing house program may include a provision to include non admitted insurers if admitted insurers are provided the first option. Clearing house program shall provide a method for policyholders to opt out of the sharing of personal information in connection with clearing house programs.

As for participation in the clearing house, the FAIR plan provides the platform by which the carriers can gain access to policy information. Instructions for carriers to participate in the clearing house are available on the FAIR plans website.

A monthly email reminder is sent to admitted carriers who are currently not participating. The clearing house is updated each month with the most current information divided into policyholders with and without a broker of record.

Non admitted carriers gain access to the policy information thirty days in arrears. This is to allow admitted carriers the first options required by statute. Clearinghouse process is relatively simple. Admitted or non admitted carriers send an email to the California FAIR Plan.

The care the FAIR plan then provides agreements to participate, which the carrier and the authorized users then sign and return the agreements. Once we have those signed and returned, the carriers and users have access to the FAIR plan database.

Looking through the database, if they identify any policies that meet their eligibility guidelines, then they can contact the broker of record. It's, at that point, up to the broker of record to provide anything to the policyholder.

Sorry. If there are any questions, then the questions can be emailed to the California FAIR Plan. The FAIR Plan added the clearing house program or to the reasons the broker can select when they're canceling a policy.

And the FAIR plan is reliant upon the brokers selecting that reason when they're canceling the policy so that we know if it went to the clearing house. As far as options for future depopulation, this slide highlights how there are many factors that impact the fair plan depopulation.

On the front end in the first circle, there's a diligent search requirement. However, in 2016, the commissioner issued an order that no longer allows the FAIR plan to require any evidence that a diligent search has been made.

And second circle, as the law stands today, there is no direct marketing to consumers. They must go through the broker of record. If the legislature wishes to change that how it is today, one option would be to allow direct access to the policy consumers after a predetermined period of time.

And the third circle is beyond the clearing house. There are other factors that impact the success of depopulation. We need a healthy voluntary market to make sure that there are options available to the consumers. And that concludes my presentation. I'll open it up to any questions.

We'll take questions after. Okay. This is after.

Thank you.

Thank you. Morning, Madam Chair and members of the committee. Josephine Figueroa, deputy commissioner and legislative director for the Department of Insurance under the leadership of insurance commissioner Ricardo Lara.

I am comfy today by miss Melissa Werner, an attorney with the Rate Enforcement Bureau in the legislative and legal branch for the California Department of Assurant to answer any questions. Technical issues may arise.

Madam Chair, Members of the committee, thank you for the opportunity to speak with you today about the personal dwelling clearing house program and the department's role in its oversight. I will address the four areas the committee requested, our statutory responsibilities,

any complaints we have received, the obstacles we have identified, and potential improvements that could strengthen the program's performance. The department's oversight role is essentially in current law, which places responsibility for the FAIR plan to develop and operate the clearing house.

The FAIR plan manages the process through which participating insurers may offer to write FAIR plan policies in the volunteer market. The department's role is to monitor the impact of the clearing house on the FAIR plain and the broader property insurance market.

We are committed to transparency and accountability in the FAIR plans administration of the Clearing House, but our involvement is limited to oversight since we do not manage the program directly and do not mandate which insurers must participate in it.

The department is not aware of any insurer or consumer complaints specific to the Clearing House program. We continue to monitor for issues, but no known formal complaints have been filed with the Department Alleging Misconduct, noncompliance, or consumer harm

arising from Clearing House operations. Since the Clearing House is set up as a transaction between FAIR plan insurers, consumers would not be inclined to file complaints with CDI since they are not particularly aware or involved in the selection process by which an insurer remakes

or an offer through the Clearing House. The consumer is not an active participant in the Clearing House process unless or until the consumer receives an offer from participating voluntary market insurer.

Although the department has not received any complaints, we have identified several obstacles that limit the clearing house effectiveness. The most immediate challenge is limited insurer participation. Only 11 residential insurers have signed clearing house participation of groups,

which significantly restricts the number of offers that can be generated. Another structural issue is the statutory requirement that offers be made through a broker or record broker of record rather than directly to the policyholder.

This can delay or prevent consumers from receiving offers and reinforces compensation structures that may not always align with, the depopulation goals.

It also creates administrative challenges for insurers that sell exclusively through captive, agents. Captain agents work exclusively for one insurer, selling only the insurance policy, whereas an independent independent agents can represent and sell insurance

products for multiple insurers to provide a wide array of insurance options for their clients. Broker compensation under existing land presents additional complications. The FAIR Plus compensation rates are often higher than those in the voluntary market, and brokers may

earn a second commission if they place a difference in conditions policies to supplement the FAIR Plan policy. Although brokers have fiduciary and statutory duties to seek voluntary coverage, the compensation structure can create a perceived or actual incentives to keep consumers in the fair plan.

There's also confusion about which compensation rate applies when a policy is moved out of the FAIR plan and insurers that cannot appoint independent brokers face barriers in participating in the clearing house because they are left without a viable pathway to remove policies from

the FAIR plan. Beyond these operational issues, a significant obstacle is the admitted market's unwillingness to ensure many FAIR plan type risks. Therefore, the department's insurance insurance strategy sustainable insurance strategy, excuse me, is designed to address this

overall underlying market condition. Consumer affordability and coverage gaps also play a role. A Fairpoint policy alone does not provide full homeowners coverage, and consumers may not be advised about or not be able to afford a difference in conditions policy.

This limits their ability to transact to to transaction back to the voluntary market even when an offer exists. I wanna talk a little bit about, CDI's report on examination of the FAIR plan a little bit. The California Department's Insurance 2022 operational assessment report,

the most comprehensive review of the FAIR plan in decades identified systematic problems with the FAIR plan's operation, including the clearing house. In 2022, the department recommended that the FAIR plan enhance and expand the clearing house program.

The recommendations emphasize the importance of using the clearing house to help depopulate the FAIR plan as required by statute and encourage the FAIR plan to consider additional strategies similar to those used in states residual market depopulation programs.

These strategies can included consumer education initiatives to help policyholders understand current market conditions, the purpose of the clearing house, and the advantages of returning to the voluntary market when possible.

As of 2025, these recommendations remain only partially implemented as the department released an update to its 2022 operational assessment report just last month. The FAIR plan has taken steps, including expanding the clearing house to commercial policies in July

2024 as required by SB 505 of which commissioner Lara was in support. This inspection allows insurers to review information about commercial properties and consider offering, offerings in in the voluntary market coverage.

In addition, beginning in July 1, 2025, the fair plan identified began identifying residential and commercial policyholders in the clearing house who have completed mandatory or optional property level mitigation measures or who are located in communities that have that have received a mitigation designation.

This is an important development because mitigation is a key factor in improving insurability and supporting the transition back to the admitted market. Despite these efforts, the clearinghouse has produced limited results.

The FAIR plan informed the department that only 730 residential risks have been placed by voluntary market coverage from the inception of the clearing house in June 2021 through our April 30, 2025. Participation among member insurers has remained low and

essentially static even with aggressive efforts made during the the rate application review by the department's rate regulation branch to many insurers asking them to enroll in the program. As the department has already noted, for insured to make an offer through the clearinghouse,

the insurer must honor the policyholder's existing relationship with the agent or broker who placed the policy with the FAIR plan. However, this obligation does not apply when a policy holder originally obtained the FAIR plan's coverage through an employee or without using a producer at all.

These distinctions create an uneven pathways for depopulation and contribute to the limited number of successful placements. As previously noted, the most significant obstacle to date has been the admitted market's unwillingness to ensure many of the properties that

are currently with the FAIR plan. The The ongoing sustainable insurance strategy is designed to change this. It does this by giving insurers a clearer, more predictable regulatory framework and by aligning rates, risk modeling, and mitigation incentives in a way that makes writing these risks viable again.

For years, insurers have argued that the rate setting system did not allow them to reflect current and future wildfire risk, which made them unwilling to write in high risk areas. As commissioner Lara himself indicated in his previous testimony before this committee just four weeks ago,

the CIS changes this by allowing the use of forward looking catastrophe models paired with strong transparency and mitigation requirements. And talk a little bit more about specific recommendations now.

The department has identified a series of targeted improvements that would strengthen the clearinghouse and better support consumers during this period of market transition. One of the most important improvements involves ensuring that policyholders are able to receive clearinghouse offers.

As previously stated, participation participating insurers must present offers through agent or brokers or records. This delays and prevents consumers from learning that a voluntary market option is even available.

Allowing insurers to simultaneously offer both to the broker of record and directly to the policyholder would increase transparency and help ensure that consumers are aware of opportunities to move out of the FAIR plan.

The process of paying commission when the policy is moved from the fair plan to a voluntary market also needs to be simplified. Under current law, a voluntary market insurer must appoint a fair plan broker in order to pay a commission, which is not feasible for insurers that sell

exclusively through captive agents, creating a narrowly tailored exception that allows the normal market to ensure to take the policy out of the fair plan using your broker agent with whom the insurer has an existing appointment would remove a significant barrier to ensure participation.

In addition, along admitted insurers or surplus lines brokers to make direct offers to policyholders who have been with the FAIR plan for two or more years would expand opportunities for depopulation, particularly given the increasing number of homeowner policies placed and then surplus line market.

Strengthening broker education would support more effective use of the clearinghouse. The FAIR plans approved continuing education course and title brokers on the FAIR plan should be made mandatory prerequisite to registering or reviewing of the FAIR plan or renewing of the FAIR plan.

Excuse me. Furthermore, the FAIR plan should enhance its broker training curriculum to enforce brokers' fiduciary, duties, diligent search requirements, and responsibilities in advising consumers about voluntary market options.

Of the FAIR plans, 54,000 registered brokers, only 604 have taken the course. Given the size of diversity of California's producer network, education and outreach are essential components of any successful deploying strategy.

In closing, improving the clearing house will require a combination of statutory adjustments, operational changes, and coordinated efforts among the FAIR plan insurers, producers, and the department.

These recommendations are designed to increase transparency, reduce barriers to ensure participation, align incentives with depopulation goals, and ensure that consumers receive meaningful opportunities to return to the volunteer market.

The department looks forward to working with legislature and all stakeholders to advance these improvements. Thank you for the opportunity to testify today.

Thank you. Appreciate both of you being here today. So we're gonna open it up for questions from members. I'll go ahead and start. So why did CDI remove diligent search requirements and any idea whether that diligent search will be requested again?

Thank you, Madam Chair. My understanding is hopefully here. Hopefully everyone can hear me. My understanding is My understanding is that requirement was being viewed as an impediment to consumers who were really eligible and entitled to FAIR plan policies

from being able to access the FAIR plan when they needed it and were eligible for it. It may have been a timing issue because sometimes getting the the written rejections that my understanding is there were three that were three written rejections from an admitted market insurer

were required as a prerequisite to obtaining a FAIR plan policy, and there's also an affordability component as well. Just because another policy may have technically been available either from an admitted or surplus lines carrier, if that policy was prohibitively expensive, is it truly available to the consumer?

And in some instances, we're seeing that replacement policies could be 10 or even $20,000 more than than what the consumer was paying. So I think that was the reason.

Okay. Thank you. And how many have been removed through the clearing house?

Our understanding is that it was approximately 730 policies from inception of the clearing house program in July 2021 through, I believe was it April 2025?

April 2025. But the fair plan might have more updated information.

April.

Do you know how many policyholders opt out?

The opt out? Yeah. The policyholders that opt out is less than 1%. Okay.

Okay. Thank you. And turn it to my committee members. Assemblyman Harabedian.

Thank you, Madam Chair. Thank you guys for being here and appreciate the testimony. I think, just building off the Chair's questions and I mean, 730 policies through the clearing house in five years or four years is effectively showing I mean, this is an outcomes review.

I mean, it's hard not to have a pretty clear takeaway that this isn't working. You only have 11 residential insurers actually taking part in the program.

And so I think as part of this, you know, we're trying to figure out how you actually get folks off the FAIR plan and back into admitted carriers. And and the Department of Insurance did note some reasons why that's not happening, broker record problems, coverage gaps.

And we'll get to that, I think, in the next panel. But I guess the question is what what exactly was the clearing house supposed to be doing and why isn't it doing it? Because I still don't know really what this clearing house program even does. As the staff report noted, it's just completely opaque as to what the program functions as.

I mean, in any other market, you have consumers going to market with an broker record looking for insurance, and they either get rejected or they get admitted. Somehow, we set up a program where insurance companies are supposed to go to the FAIR plan and.

I guess, cherry pick, if you will, plans that they want to bring back. It's odd that we would have thought that that would have worked in the first place, but what exactly is the functionality of the program? And could you just walk us through how it actually works?

I'm happy to take take that assembly. I repeat. And so I was I was in a room when the bill passed in '30 what, 3012 and 2020. So at a very basic level, it is just a platform to reduce the concentration of the FAIR plan at the time. Right?

But you you must understand there's context here because there's independent parties that have to agree to take someone out of the FAIR plan. The FAIR plan never had any control as far as Armand has to leave the FAIR plan out.

Leave the FAIR plan and go somewhere else. And they're not asking to. Right? It's a platform to start the process of reducing the concentration of the FAIR plan. So number one, you do have independent parties.

And I appreciate the CDI's testimony because that the the broker issue, it's it's a lot of policyholder policy questions that are involved in that because the incentives for the brokers to remove somebody out of the FAIR plan.

There's a lot of factors that they need to take into consideration doing that. And I won't I'm sure they're testifying today, so I won't get in too much in the specifics of that. But, again, the message here is it's a platform.

You got two independent parties that are one of them wanna do business together before they even come out. And the second piece of that is you have the sustainable insurance strategy. The policyholders need somewhere to go.

So, again, CDI rhyme rightly pointed out that if there's not availability in the private market, it's hard for someone to leave the FAIR plan. If if I mean, I'm not sure I'm tracking because there's there's a big picture here that's happening outside just the FAIR plan.

Right? And then for the FAIR plan's role of meeting the needs of consumers, you do have mandatory expansion to the FAIR plan that's been happened for the past five years. Right? Last year, SB525 to cover mobile homes. That's a that's a big expansion.

So there's a lot of these other factors, but I think going back again, Madam Chair, thank you for the hearing because I think this is a lot of stakeholders are involved, and there are good some ideas that the CDI has presented today that we can, you know, work with stakeholders and see see how we can improve the FAIR plan.

Yeah. Well, I guess the question is whether you try to improve it or you just let it sunset and and don't don't do it anymore. I mean, I don't under understand why we would continue with the program given the testimony. I mean, maybe maybe some data would help.

For example, there's 730 policies that have actually been removed from the FAIR plan through the program.

How many how many offers beyond the 730 have been made through the clearing house to policyholders that, I guess, didn't consummate a new policy.

You wanna touch on the process itself because you're relying on data that you're getting from

from Yeah. So once the carrier identifies policies that they want to take on, they have to go through the broker of record?

Yep. We've heard that now Right. I think six times. Yeah. Thank you.

The FAIR plan doesn't have any data to know what offers have been made. We only have the data for the offers that have been accepted and then canceled. But then even at that point, the broker has to select the clearing house as the reason for why the policy was canceled.

They have other reasons they can select such as insurance request. So there could be more policies that have left. We only know of the number of policies that were identified as clearing.

They have to check a box when they say that.

Check a box.

If they don't check the box, then they don't know.

Yeah.

And and that's only gonna tell us the cancellations. We still don't know anything about the offers. That's interesting.

Yeah. So you don't you actually don't know. I mean, it's just self reporting data then. And the only the 730 is based on someone leaving the FAIR plan, checking the box that they're using the clearing house.

And that's that's how we have our data as to whether the clearing house program is working or not.

Right. Yeah. That seems I mean, that seems problematic. I mean, it seems like you should have much more data on how this transaction is happening. And to the extent that the legislation didn't provide for, what what should we be providing for to allow for better outcomes?

So, Assemblymember Harabedian, one thing I forgot to go over in the slides is we would recommend that we get more data reporting to the FAIR plan from the carriers and the brokers. And right. So that we can track how many have been taken from the FAIR plan.

And that that could include the data as far as offers. But we we would like to see some mandatory reporting.

So we don't you sitting here today, you don't even know how many offers have been made through the clearing house program since its inception. You don't have that data?

But, actually, I'm pretty sure you can. Because I was gonna ask, you know, how was the program working in wild wildfire prone areas and whether offers in those areas were being made. But just you don't have any of that data. Any of the the CDI?

Wow. Okay. Well, then I don't think any of my additional questions probably you can answer.

Correct.

Okay. That's correct. We do know.

K. Appreciate it. Thank you, manager.

Assemblywoman Addis.

Thank you so much, and thank you for the information. And you may not be able to answer this question either, but, you know, I've talked a lot in these, hearings about the huge percentage growth into the FAIR plan on the Central Coast since, from 2020 to 2024.

We estimated a 300% growth in Monterey County, a 530% growth in Santa Cruz County, and a 560% growth in San Luis Obispo County. And, two of those counties have not seen the massive wildfires that we saw in Santa Cruz County.

Of course, in Santa Cruz County, we had the CZU fires in 2020 that affected people's ability to get insurance, people's ability to rebuild, etcetera. But San Luis Obispo and Monterey County haven't seen those kinds fires yet. We've had double the growth into the FAIR plan in those two counties that we've seen in Santa Cruz County.

And so, my question was gonna be, you know, what are you seeing region by region? I know the assembly member asked about high wildfire areas and what happened in LA cannot be understated for the tragedy and and the amount of people that if they're able to rebuild are likely gonna be forced into the FAIR plan.

But what are we seeing geographically across the state? It sounds like a relatively small number, 730. But where are those folks and and how is the clearing house being effective across different geographies of the state?

Thank you for the question, Assemblymember Addis. I unfortunately, I don't have the data to the geographic level prepared today, but I'd be happy to research that and get back to you.

That would be that would be very helpful. I know folks in every region of the state are asking. I do wanna be able to provide that to constituents in our area. We held a, a town hall as it were with the insurance commissioner.

It was probably one of the most popular things that we've done because people are so hungry for information about how they're gonna get homeowners insurance and why they're being pushed into the FAIR plan even though some of their areas haven't seen these wildfires.

And so it's very confusing for people and they wanna know how they're gonna get back into the regular market. I guess the second question, and I'm not sure if you have this answer either, is I've talked a number of times.

I know it's important to the Assemblymember and many others who have already spoken about under insurance and the problem of under insurance. And if the clearing house as you're doing work to move people from the FAIR plan into the regular market.

Because one of the things that has happened for too many people, certainly in the LA fires, definitely on the Central Coast, is in the regular market.

They're actually not being offered the type of insurance that would cover a rebuild, and we've seen it in fire after fire. I think, you know, folks think that they're injured well enough and and they're not. And it's not because they didn't wanna pay for the insurance.

It's because they weren't offered the product. And so I'm just wondering how the clearinghouse is approaching that kind of issue if at all.

Yeah. No. So I think that question, respectfully, some of them were at us. It they say it's a broker question because they don't actually advise the policyholder. It's the broker has to let them know, do you have enough insurance, or are you underinsured? So that conversation is not a level of information that actually privy to.

So I just would suggest, if people have enough insurance in the FAIR plan, say, they're in the FAIR plan market, they have adequate insurance. There's an effort to get them back into the regular market that the clearing house process would be cognizant that we want

people to be have enough insurance in the regular market also. Right? So if part of the effort is to get people into the regular market, we need to also be cognizant of this under insurance problem. Otherwise, we're pushing people either into unaffordable insurance, which it sounds like

as, in many cases is happening, Or we're push we're we're trying to move people into inadequate insurance, which also is gonna be very challenging.

So I just would suggest that the clearing house is aware of that issue as well. Appreciate it. That's it for now. Thank you, madam chair.

Welcome. Do we have any other questions from, Members? Assembly Member Gipson?

Thank you very much. Just a real quick question. When does this sunset when does it sunset? Do we have a dozen sunset? There's no sunset. Okay. Because I know it was made mention of it, so I was just curious because I couldn't find a sunset. So that's why. Thank you.

Welcome. I have couple more questions. So what personal information is provided to insurers?

Thank you, Madam Chair. The the FAIR plan when a policy is represented by a broker, the FAIR plan provides the first three letters of the policyholder's last name and then the full property address.

As far as the property is concerned, it lists the coverages and certain property characteristics along with the broker's contact information. If the policy is not represented by a broker, then the full policyholder's name is provided.

Why is there a difference?

I'm I'm sorry, madam chair.

Why is there a difference?

Difference between the information provided?

Oh, so the only difference in the information provided is if it's represented by a broker, then the the carrier seeking the coverage has to go through the broker.

So it's limited information.

So it's limited. They don't get the customer's full name Right. So they don't contact the customer directly. Per statute. Per statute. Yes.

K.

And then I have one more question. So the the FAIR plan is essentially taking no ownership of their policyholders. I mean so if if a time frame was put on how long a policyholder could be on the FAIR plan, how would the FAIR plan implement that?

I think, so I will I think we we need to discuss that with stakeholders. Obviously, the concept there is after predetermined time, let's say, I don't know, a couple years, at that point, the FAIR plan would would be willing to release more information.

That way, insurers and other folks can approach the FAIR plan policy, although give them more options at that point. Because then it it you know, he just laid out for you the the difference in information available publicly.

So what they're saying is that after a period of time, consumers should have more choice and see if other lower priced products can be marketed to them directly.

Okay. Do we have any other questions from the dais? No? Okay. Thank you so much for your testimony. Appreciate it.

Thank you. Okay. Now, we'll call up our second panel, and we'll hear testimony from several people. Please welcome John Norwood on behalf of the Independent Agents and Brokers of California.

Mark Sektnan, Vice President from American Property Casualty Insurance Association. Saren Taylor, Vice President, Personal Insurance Federation of California, and Clisten Brown, Vice President, Surplus Lines Association of California. Welcome, gentlemen. Whenever you're ready.

Yeah. Good morning, Madam Chair and Members. John Norwood on behalf of the Independent Insurance Agents and Brokers of California. Thank you for the opportunity to have a few comments this morning on this program.

As the department indicated, a little background information, the insurance marketplace consists of at least three delivery systems or sales systems.

Independent agents are members to represent multiple insurers and can shop the entire market for coverage because they're brokers. Captive agents that represent one company such as State Farm or Allstate, and insurers who sell products through employee agents.

There's actually a quite a history of independent agents also contracting with captive agent companies as well as direct writers, dry insurance, especially in rural areas and that type of thing. So that's not something that can't be done.

IIABs, IIAB Cal supported the clearing house bill in 2020 because we believed it would provide yet another market for our brokers to place insurance.

In addition, the bill took the same approach as adopted by other states that have a clearing house program to ensure that new offers for coverage would dovetail with other insurance coverages held by the homeowner, and the consent of the insurer would be obtained through

the agent or broker that the home that advised the homeowner. At that time, I don't think anybody felt that the clearinghouse program would be the silver bullet to depopulation of the FAIR plan. But really, realistically, just another tool that we'd have in the toolbox to try to help with that effort.

Also, five years ago, I don't think anybody envisioned the FAIR plan being as large as it is today. I mean, it's the elephant in the room.

Everybody realizes that. You can't have a real conversation about a return to a conventional market for insurance until you deal with depopulation of the FAIR plan. In that same vein, you cannot ask why the clearing house program is not working when we haven't dealt with

the key factors in the insurance marketplace that are needed before depopulation could even occur. In reviewing the bill analysis and other background information that led to the enactment of the clearing house bill, the goal was to, and I quote, provide a platform for agents

depopulation of the FAIR plan to work and for the clearing house program to be an element of that program.

and brokers and insurers to work together to move policies from the FAIR plan to the voluntary private admitted market. Based on materials and the testimony this committee's had over the last couple of informational hearings, there's two things that must happen for

A, there must be an open and functioning admitted market for homeowners insurance in the private sector, and B, the FAIR plan must have approved rates that make them the market of last resort, not the market leader for homeowners insurance like they are today.

Neither is the case today. Just a couple weeks ago, the insurance commissioner before this committee said there were just five of the 118 companies licensed to write homeowners insurance in California that have new rates approved by his department.

He said that there were another, eight or 10 in the queue for that. He also indicated that he thought it would be another two to five years before the market returned to normal.

Our association recently conducted a poll of our members to confirm that there has been little change in the availability of admitted market admitted insurers willing to write homeowners insurance in fire prone areas.

76% of our members report that they are not seeing insurers reopen for business in distressed areas. 90% of our members report that they still rely on the FAIR plan for about 25% of their book of business. The exception is the non admitted insurers.

Non admitted insurers are available to write many of these risks because they have the ability to charge premiums they believe reflect the risk they're being asked to assume.

Our members tell us that when they obtain an offer from a non admitted insurer to place coverage, more often than not, the client's not willing to pay more than what they're paying in the FAIR plan, so they stay put.

As you heard from the FAIR plan earlier this year, the rates the plan is charging are inadequate. That's clear when you look at the rates the FAIR Plan has requested over the last three cycles versus the rates that have been approved.

By the plan's own testimony, they need an 80% rate increase to have actuarially sound rates. So this is kind of the situation.

FAIR plans rates are here. Non admitted insured rates are here. The homeowners are making a pocket book book decision to stay in the FAIR plan because they believe when the admitted market gets through all these rate approvals, they're gonna come back in and the

FAIR plan rates are gonna be here and the admitted market rates are gonna be here, and then then they'll change. But the reality of the situation is just based on what the FAIR plan's asking for rates, what non admitted insurers are are asking in premiums, and what

consumers are paying in the other six states in the country that are catastrophic states that that the premiums for the FAIR plan will be here for the admitted market here and the non admitted market here. So it's our belief there's really not very much you can do right now to

alter the consumer's choice to stay where they are until things change. And we also don't believe that imposing mandates to try to force homeowners out of the FAIR plan are really politically viable. Our member survey indicates there's some hope for a better market.

Nonrenewals have slowed substantially. Reinsurance costs have softened worldwide. Our members are seeing some appetite for growth among carriers.

Thanks to the insurance commissioner, California is now in line with other states, allowing insurers to use rating factors such as the cost of reinsurance and catastrophic modeling, and insurers are getting through the process.

So with that in mind, we do see some things that could be considered going forward to help depopulate the FAIR plan, whether it's through the clearing house or otherwise. Just quickly, one, improve transparency and efficiency for voluntary market outreach.

FAIR plan could publish aggregated data identifying brokers with the largest number of clients in the plan by ZIP code or geographic area. Then insurers, whether admitted or not admitted, seeking to expand their market share could then market directly to brokers.

This could be particularly helpful for non admitted for the non admitted market insurers because they write through wholesalers who in turn get their business through retail agents and brokers, our members. Establish a time limited FAIR plan placement, similar to Florida's approach.

If private coverage is available within a defined premium corridor, for example, within 10 to 20% of the FAIR plan pricing, a homeowner would not be eligible for renewal in the FAIR plan. This would preserve the the FAIR plan's function of a market of last resort while preventing

indefinite below market retention. Lastly, outside the clearing house, under the sustainable insurance strategy, insurers are required to write 85% of new business in distressed areas. Carriers should be encouraged to first offer coverage to policyholders they've previously non renewed.

In most cases, that insurer is writing the continues to write the DIC policy for that insured. Often, they're writing the auto and homeowners or auto and umbrella policy for the homeowner. They already have a customer relationship and an agent in place.

They already possess the property data. And given the relatively small number of large carriers that control most of the residential market, even a partial rewriting of that book of business could materially reduce the FAIR plan.

So in conclusion, we don't believe that depopulation can be mandated into existence. We have to fix the underlying system. I appreciate the opportunity.

Thank you, Mr. Sektnan.

Chair and Members of the committee, thank you for the opportunity to testify today. My name is Mark Sektnan, and I'm vice president of state government relations for the American Property Casual Insurance Association.

APCIA is the leading national trade association represented over 1,200 companies who write all lines of property and casualty insurance. California's FAIR Plan was designed as an insurer of last resort, a temporary safety net for property owners who cannot obtain

coverage in the voluntary market. In recent years, however, the fair plan has experienced extraordinary growth.

That growth raises concerns not only for the plan itself, but for the broader insurance market and ultimately for consumers. A growing residual market concentrates risk, increases assessment exposure for insurers, and signals stress in the admitted market.

The legislature recognized this risk when it enacted AB3012 in 02/2020, creating a residential clearinghouse intended to connect Fair Plan policyholders with the private market. This was the appropriate policy objective. Just as an aside, this was partially based on what was called the Sierra Insurance Finder, which was a creation of the Tree Mortality Task Force insurance subcommittee.

Yes. There was such a beast that worked in 2015 and 2016, and United Policyholders and APCI put this together. But it's important to note, the market was much different when we were working on the Sierra Insurance Finder than it is now, and that plays a key role in the success of the clearinghouse. The key question before this committee today is whether or not California's clearinghouse has implemented its working in practice. From a mature perspective, California's clearinghouse remains largely voluntary, manual, and constrained by market realities.

The clearinghouse allows admitted insurers insurers to review for fair plan risk and make voluntary offers through the agent or broker of record. Broker participation, while encouraged, is difficult to enforce and can create operational fiction friction. The program does not permit forced transfers and ensure participation is voluntary, which we support because sustainable to both the population depends on the sure assuming risk that can prudently underwrite, price, and retain over time. Volunteer placement ensures that take out decisions are aligned with underwriting standards, capital capacity, and long run risk appetite. Since its establishment, the clearinghouse has been expanded and refined through additional legislation and regulatory actions, including the extension to commercial lines.

However, insurers report that these expansions have not meaningful increased to population because they do not address the binding constraints that determine whether insurers can reasonably assume risk. These constraints include persistent rate adequacy relative to underlying risk and limits on underwriting capacity driven by capital and reinsurance consider reconsiderations. In this context, the issue is not a lack of interest in depopulation, but the absence of conditions necessary for sustainable private market participation. Other states offer a clear lesson. Clearing houses can help, but they are not the primary driver of depopulation.

Residual market shrink when entry is constrained, premiums are appropriate, and private coverage is meaningful flavor favored. States that have kept their fair plans small rely on a consistent set of guardrails eligibly tied to the absence of private market options, premium differentials that present prevent the residual market from underpricing risk, mandatory acceptance of reasonable private offers, and structural images uncovered even as policy forms evolve. Florida and Louisiana illustrate different applications of these principles. Florida pairs a clearinghouse with mandatory movement and rate discipline. Louisiana relays more heavily on pricing and eligibility controls, except in a slower depopulation.

Florida demonstrates how depopulation accelerates when market signals are clear and rules are enforceable. Louisiana offers a contrasting example emphasizing pricing dip on incentives over speed. From an insurer perspective, California's clearinghouse remains constrained by three practical realities. First, rate adequacy. When fair plan premiums are materially lower than actually sound admitted market rates, policyholders have little economic incentive to leave the fair plan for more expensive private coverage even when insurers are willing to make offers.

In that circumstance, the population will stall. Second, operational friction. Insurers receive limited underwriting data through the clearinghouse and must coordinate through brokers making slowing decisions and limiting scalability. Third, misaligned incentives. Brokers play a central role but receive no compensation for clearinghouse activity.

This result has limited an episodic policy movement, not because insurers oppose depopulation, but because the current structural underpricing and process constraints limit both insurer offers and policyholder acceptance. Florida's experience also underscores the importance of aligned agent incentives. As depopulation accelerated, agents risked losing customers and renewal commissions when policies were assumed by insurers that did not appoint them. Florida addressed this by allowing limited appointments so the agent of record could continue servicing the policy. California already requires clearing house activity to occur through the broker of record.

While Florida's depopulation framework demonstrates that aligned incentives and clear rules can produce meaningful policy movement, California's market structure differs in ways that weren't cautioned before reporting Florida's approach wholesale. Florida's takeout market has historically been supported by state based or regional insurers, operating primarily through independent agents and mono line property writers, which facilitates limited appointments and agent driven transfers. In contrast, California's homeowners market is dominated by large national multiline insurers who operate through exclusive or tightly controlled agency systems and manage risk on a portfolio wide basis. In that environment, mechanisms designed for broker centric, monoline market may not translate cleanly and could introduce operational distribution conflicts without producing the depopulation results. The issue is not whether Florida model works, but whether its structural assumptions align with California's market realities.

For that reason, our members support learning from California Florida's experience but believe California's clearinghouse should be evaluated and refined based on our own market composition rather than by direct replication. In closing, experience across states demonstrates a consistent lesson. Clearing houses can help reconnect policyholders to private market, but they cannot compensate for upstream policy choices that drive residual market growth. California's challenge is not whether clearing houses work, but whether the clearing house is supported by actually sound fair plan rates. So policyholders have a meaningful incentive to transition back to the private market.

Clear and predictable clear clearinghouse mechanisms, including pricing alignment, data availability, and voluntary participation rules that allow insurers to responsibly assume and retain risk. Aligned incentives for insurers, agents, brokers, so participation is operational feasible at scale, and a policy and regulatory environment that supports private market participation and avoids changes that inadvertently expand reliance on the fair plan. The most effective path to populations restoring a healthy competitive private market, California has taken important steps in that direction. Now is essential to give these reforms time to work, evaluate where they fall short, and avoid actions that inadvertently expand the residential market further. Thank you for the opportunity to share these perspectives.

Thank you. Mister Taylor.

Thank you. Good morning, Madam Chair and Members. Sarah and Taylor on behalf of the Personal Insurance Federation of California and the National Association of Mutual Insurance Companies. Thank you for the opportunity to comment on the Fair Plan Residential Clearing House Program established by AB 3012. My colleague, mister Sekhtin, made a lot of important comments there, so I'll try not to be repetitive.

But getting right into, I think, the crux of what's been being talked about today. From the perspective of the admitted market insurers, it is important to note that carriers do not yet have extensive operational experience with the clearing house. The market for high risk properties has been constrained for many years, and insurers that are able to write new coverage can easily find business outside the clearing house. Therefore, utilization of the clearing house program has been fairly limited. However, you know, we're hopeful that dynamic will be gonna change as the commissioner's sustainable insurance strategy continues to move forward.

As insurers begin writing more policies and wildfire distressed areas, consistent with the commitments contained in recent CESS filings, we expect there will be greater need for the clearing house to help move policies from the fair plan to the regular market. In that context, the clearing house could become an important tool for achieving the goals of fair plan depopulation and growing private market availability and wildfire risk communities. Insurers are asked about the challenges they encounter with the clearing house, the feedback we receive is that the issues are more structural than technical in nature. For example, carriers that offer a difference in condition or DIC policy, However, greater clarity is needed around the process when there is no customer relationship and the policy originates with another broker. In addition, including the most recent fair plan premium data and data files would improve insurers ability to evaluate whether they can offer competitive alternative and whether a successful depopulation effort is likely.

You know, another structural limitation exists because California has no mechanism requiring policyholders to move to an admitted carrier when a comparable offer is available. And without that type of framework, conversion rates may remain limited even when private market options exist. Now we have several, improvements that could strengthen the clearing house program that includes incorporating the current fair plan premium into the submission data, establishing a clear and standardized depopulation process, and providing greater visibility into wildfire mitigation efforts so insurers can better assess eligibility and pricing. Collectively, these enhancements would improve transparency, efficiency, and ultimately, the conversion of policies back to the admitted market. But lastly, successful depopulation will also depend on ensuring the fair plan rates are actually sound.

And a couple of people have referenced this. The fair plan did previously testify in this committee that it faces a rate need of roughly 80%. They have a 36% rate filing pending. And if fair plan policies remain under price and subsidized through assessments on regular insurers and their policy holders, it's gonna be very difficult for admitted carriers to compete for that business. So a lot of things to think about here.

But, again, not a lot of experience yet. The hope is that there will be a lot more as the SIS starts to kick in. And down the road, people are gonna need to go to the clearing house to try to find this business. We're just not there yet. So thank you. We look forward to working with the committee to ensure the clearing house is an effective tool for storing a healthy insurance market and appreciate your time.

Thank you, mister Taylor. Mister Brown?

Good morning. My name is Cliston Brown, and I am the vice president for public affairs with the Surplus Line Association of California. I would like to thank the Chair, the Vice Chair, members of the committee, and staff for the opportunity to testify here before you on the matter of the Fair Fair Plan Clearing House program. Before I discuss the issue that is before us today, I would like to provide some very brief background information on the surplus line association and how surplus line insurance is regulated under the California insurance code. The surplus line association was created in 1937 and appointed in 1994 as the California Department of Insurance's surplus line advisory organization.

In this role, we review every surplus line transaction filed in the state of California to verify compliance with the surplus line laws. Surplus line insurance in California is regulated primarily under 21 sections of the California insurance code, section 1760 through 1780.

Some of which are particularly relevant to our testimony today. It is important to note that by law, surplus line insurance is specifically intended to be a secondary market with admitted carriers being given the first opportunity to cover a risk.

California insurance code Section 1763 requires that surplus line brokers make a diligent effort to place a risk in the admitted insurance market. Brokers may place a risk in the surplus line market if the broker obtains three declinations from a vendor carriers who write

that type of risk and determines that fewer than three insurers actually write that type of insurance in California or finds that the particular coverage is included on the commissioner's export list.

In short, a risk can be placed in the surplus lines marketplace if a broker first obtains prima facie evidence that the risk cannot be insured in the admitted market. Surplus line insurance, therefore, functions as a safety valve, providing insurance options to consumers

where such options would otherwise not be avail available. For property insurance coverage, primarily fire insurance, should a broker fail to place a risk with either the admitted or surplus line markets, the broker can then place that risk with the insurer of last resort, the FAIR plan.

California insurance code section 10093 subdivision a clearly lays out the progression from admitted insurers to surplus line brokers and only then to the FAIR plan. However, we are aware that agents often lacking knowledge of the law or the surplus line marketplace commonly place policies directly in the FAIR plan.

When the legislature passed AB 30126 years ago, we were hopeful that it would help restore balance to the homeowners insurance marketplace and reduce the FAIR plan's exposure. We asked that the bill allow for surplus line insurers to take part in the clearing house,

and we're very pleased when it was amended to do so as provided in California insurance code Section 10095 Subdivision J. However, we realized a problem existed when the FAIR plan reached out to us to ask if we could provide information on surplus line insurers who might be

willing to take policies out of the clearing house. We could not do that because California insurance code Section 1761 subdivision a specifically requires that surplus line transactions be conducted through a California licensed surplus line broker contacted the non

admitted insurers to place the risk. As noted earlier, this legal requirement is in place to help preserve the prerogatives of the admitted market. Additionally, surplus line insurers are not our members. The SLA is a broker association, and per California insurance code section 1780.52

subdivision B, only licensed surplus line brokers are deemed by California law to be members of our association. We do not, as a matter of either law or practice, represent surplus line insurance companies. To the extent that we have any dealings with surplus line insurers,

it is through our financial analysis department's charge to perform a security review and analysis. Upon discussion with the fair plan, we came to understand that the fair plan believed AB 3012 required them to work directly with insurers.

They could not open the clearing house to surplus line brokers. As noted earlier, California statutes governing our industry simply do not permit that approach, which creates a legal impasse. As such, surplus line brokers have had difficulty in accessing the clearing house except in certain specific cases.

number of policies out of the clearing house, and we believe this is because Delos, as an MGA, has an insurer's authorization to bind business on the insurer's behalf.

For example, the Burns and Wilcox brokerage has received authorization from a Lloyd's syndicate, Amlin, to access the clearing house on its behalf. We also have learned that a managing general agent in the surplus line space, Delos, has been able to take a

I also learned this morning of another brokerage that is poised to begin taking policies out of the clearing house. However, except in rare cases such as these, we believe that the legal and procedural impasse has significantly prevented the surplus line industry from

accessing the FAIR Plan clearing house. We've also heard that some of the brokers of record who have placed policies for the FAIR Plan have expressed reluctance to move those policies to the surplus line market due to the lower premiums in the FAIR plan.

In short, surplus line insurers have largely been unable to participate in the FAIR plan clearing house except in rare cases where a surplus line insurer has authorized a surplus line broker to act on its behalf. We believe that the legal and structural barriers that currently exist will

continue to impede participation in the clearing house by our industry sector.

Thank you for the opportunity to testify here today.

Thank you. Do we have any questions from Members? Assemblywoman Addis.

I do. Thank you so much, and thank to all of you for your presentation. My my questions are really the same as for the last panel. I understand there's challenges moving from the FAIR plan into the regular market, But if there's any data around how things are going

geographically across the state, if we have pockets where it's more difficult, pockets where things are going better. I know we have statewide issues, and we're starting to see people come back into the marketplace.

But if there's anything geographic specific And of course, my particular interest is Central Coast, you know, Santa Cruz, Monterey, San Luis Obispo issues, knowing that, you know, we have massive issues statewide.

Gotcha. Yeah. Saren Taylor again with PIF. I'll you know, what I can offer to you to think about is under the commissioner's sustainable insurance strategy, they've identified they have data around distressed area zip codes.

And what those distressed areas generally reflect is high FAIR plan concentration. And so while, you know, as PIF, I don't have that data on a statewide basis. We have individual carriers who know what their situation is, and that doesn't get reported to me.

But the department has data around that and that's what they've built out with those distressed areas. So that is a clear indication. If you're on that ZIP code list, that means that there's a high degree of FAIR plan concentration there and that's gonna sort of tell you what's going on.

And I do think in the Central Coast in your district, there are a lot of that. And obviously, you know, at this point, something like 80% of the state is considered a high Yeah. You know, high fire risk area. So even if there hasn't previously been a fire there, the fire threat is still active.

So they're looking and if they find coverage, oftentimes, I mean, they call the con the consumer. Basically, it's we have additional coverage for you.

Now, the association also just kinda inked a deal with the surplus lines group to try to, you know, make it easier for our members to access that market as well. And some of our our larger members are also service lines brokers, so they have direct access to that.

Yeah. If I can add to that. Hope this is all kind of done by now. But one of the things that I think occurred when people are looking at getting non renewed and they're a place where they're not in a fire, you know, and they're wondering why, you know, what what happened.

You know, the commissioner can impose moratoriums on non renewal of insurance in all the areas and adjacent areas that have been affected by wildfires. And that's really good for customers. It's good for the agents. It's good for everybody involved.

But in some cases, insurers, have who are under pressure because they can't afford re the reinsurance to continue to write as broad as they they want to, and they have to restrict their book of business, have to cancel somewhere. So then they start canceling in areas where they're not fireproof.

And so, you know, every action has an equal and opposite reaction. I mean, that's happened, hopefully, with, you know, some softening of reinsurance rates worldwide and, you know, the the the SIS being involved and, you know, we're past that and we can see that turnaround. But that has been, you know, double edged sword.

And on that, you know, shares are required by law to maintain certain capacity to pay reserves and claims. And if you have a more term situation where a large area of policies are under more term and you can't adjust your book of business there, then you have to look other where other place. I think that's a lot of what you're saying.

Yeah. I think, you know, what's concerning and I said at the last panel, but I'll say it again, is we've had, you know, close to 600% increase in four years on the Central Coast from 2020 to 2024 into the FAIR plan. We're talking about how we're getting people out of the FAIR plan.

Certainly, you know, we've got folks in two counties that haven't experienced wildfires, God forbid. Folks in one county that experienced a devastating wildfire that have struggled to rebuild, not necessarily, you know, your responsibility.

There's a lot of reasons they haven't been able to be rebuild, but, you know, folks are anxious to to understand this. So, appreciate that. And, you know, my other question, I would say I ask it at every single hearing, is what is happening with under insurance and how is it, you know,

when we're we're trying to move folks out of the FAIR plan back into the regular market and hearing two things. One, that insurance in the regular market out prices insurance in the FAIR plan. That's a problem.

But also a huge concern that when people get back into the regular market that they're not being offered enough insurance. Right? Of no fault of their own. But.

I think there's a couple of ways to address that. I think one of the issues you have to understand is that insurers, ever since the 1991 Oakland Hills fire where there were replacement cost policies and the cost were extraordinary.

The joke is they found more rare book libraries in Oakland than anybody ever thought existed. So companies moved to policy limit policies. That way, they can predict what their actual risk is.

Companies are required by regulation to give homeowners a estimating replacement cost value estimate. The problem with that is and when the regulations were adopted by the prior prior commissioner, we brought this up. Those regulations do not include demand surge. K?

The commissioner did not wanna include demand surge because it's unpredictable. And by including that, it would have raised premiums for generally everybody. But that entire predictability is where you run into a lot of the under insurance problem. The amount of insurance is determined by the policyholder who pays the premium.

The legislature has addressed this issue somewhat by having companies required to offer an extended replacement coverage policy, which people can buy to provide additional coverage. I don't know what the uptake on that is, but there is an option.

But under insurance, it's going to be a huge problem until we are able to anticipate in price for demand surge.

I don't know. I didn't know if you were looking at No. Okay. I I guess, you know, in some states, folks are notified of of this. You know, you should be aware of your replacement cost.

You should carry it now for insurance. I don't know that that's really necessarily standard in California. At least I haven't seen it be standard in California. That that people would be made aware. You may not be being offered a policy that is going to cover your replacement cost, you know,

therefore, you might want to do X, Y, and Z. Some states do have that kind of a notification. And in some states, actually, the, you know, the coverage goes up every year sort of automatically or just offered a you know, another policy that is going to keep up with the rate of,

of what the replacement cost is estimated to be. And and so a lot of people have really struggled actually across our state in these fires. And I bring it up in this context because we're talking about moving people back into the regular market.

We wanna make sure when we when they get there, one, they can afford it, but also they're offered the the coverage that they're gonna need.

Yeah. Well, I guess I would add one thing is that when people look at what's the cost to rebuild my house, they're often looking at databases, which are out there in the industry or in the construction industry.

But just by their nature, the databases are two years behind. And when you see 30% inflation of costs and things like that, that's an issue. With AI now, it must you know, maybe it'll those will be updated much quicker. So I think, you know, that's one of the issues.

As Mark points out, the the whole idea of extended replacement is, you know, you you you're insuring your house to the value you think it will cost to, you know, be replaced and then add 50%. And then that kind of is supposed to take care of the bubble from after events, etcetera.

And you can go 50%, 75%, a 100%. And that's and it's less than the cost of the, you know, the underlying coverage, the coverage aid.

Oh, please. Yeah. No. I just wanted to add that. I did happen to get my renewal back in October. So I took a picture of it because I know this issue comes up. And and on on that renewal, it has the replacement cost estimate.

And it does say, you know, we've adjusted you up a little bit, but you should talk to your agent and figure out is this the right amount for you. So that is typical in California that you do get that, you know, to say that you as a customer ultimately need to decide what's the amount.

And as Mark alluded to, there's a long, I think, legal, statutory, and regulatory history on this issue. It does tend to pop, you know, over decades. It pops up after almost every wildfire because of the demand surge that hits, and then that adds to this issue.

I'll just say anecdotally, I have, a number of companies telling me that they had people in LA that were insured at $800 a square foot, had a 50% replacement cost policy to cover $1,200 a square foot. And the way the contracts are coming in because of the demand surge,

some people would say there's price gouging. They're seeing rebuilds of $15- $1600 dollars a square foot, which is something no one would have even imagined. And so when you when we talk about estimating what is the rebuild cost of a home, even in a normal circumstance, it's difficult.

You know, again, it's a little bit of a personal anecdote, but I just had to put a roof on a property here in Midtown Sacramento. And I just went and got bids on a roof. And in the span of one year, it went from 22 to 30,000 to 45 to 60,000. And when I got two estimates, same materials,

two different contractors, one was at 40,000 one was at 58,000. So what's the right number? Right? How do you just say, in a vacuum today, here's what it's gonna be a year from now with demand surge, 15,000 people trying to rebuild. There's a couple 100 contractors. The material costs are up.

So there's so many things to pick that right number. And if I think people try their best, carriers try their best. I think, you know, customers also do make decisions. Some people, as you talk about, like, they wanna buy more. And I think, generally, if you go to your insurance, say, I wanna increase my coverage, they're gonna say, yes.

They have no motivation. Not you know, the difference between a $900,000 policy and a $1,200,000 policy is not that dramatic. I think if if you had, like, a $1,000,000, you know, estimate and you said, I want $5,000,000, they might go, that sounds a little suspect.

Let's talk about that. But but, you know, there's there's this tension where a lot of people, I think, often are like, what's the minimum I can get away with for purposes of my mortgage? And that's an economic way of thinking about this. And most people don't think they're ever gonna be the victim of a wildfire

or a loss, So they make that economic decision. And then, of course, when this happens, then then they're upset and they wanna be like, my insurer didn't give me enough coverage. So I think there's a lot of dynamics in this under insurance conversation.

I would agree there's untold dynamics. I'll just say the stories we're hearing are folks that, actually, their insurance company said no. We act we don't offer more coverage. We don't offer a higher level of coverage. And then the other stories that we've heard and have been published,

I think, in some of the newspapers are that companies actually were using tech platforms that were undervaluing and and by design under, you know, offering under insurance.

And those pieces, I think, are the ones I agree with you. Construction costs, material costs, inflation out of control and has really hit the construction market hard. I'm married to a construction manager as I've said in many hearings.

So, you know, we'd I'm familiar with the with these issues, the rebuild costs with 16,000 homes burned down. I mean, the rebuild costs are out of control. Absolutely agree on that issue. And, of course, there are folks that say, I simply can't afford or I don't want to pay that premium.

The very specific problem I'm talking about and why it's pertinent to this issue is why we're getting, folks you know, we have this huge massive effort to get folks back into the regular market. We wanna know that when they get into that market, insurance companies are going to be, you know, one,

using data that is going to accurately, as best as possible, accurately value what somebody's gonna need, not using platforms that are undervaluing. And then two, that companies really by and large across the state are doing what you've said, which is offer the insurance somebody's need,

somebody needs, and then let the consumer decide. But that's not that's not the the you know, what we've been told that those two things we are still struggling with in the regular market.

I just looked at the survey that our association took, and some insurance companies do limit insured valuation. In other words, they're not gonna write policies above a certain amount. So that could happen in terms of just we're not gonna go there.

Yeah. But that's usually Yeah. Like, 3 million some people will cap out at $3 million and then you get into a more specialized product that's not Yeah.

It's not the right

at $900,000. But anyway.

Moderating Carmel, there's a lot of high value homes. I mean, you know, so we looked at the whole issue of stacking FAIR plan on top of, you know as far as FAIR plan policy, then stacking other policies on top of that, and then trying to blend all the other coverages.

Yeah. That would be interesting to understand and be happy to follow-up with your office just if, you know, if you have some of those examples because it's a difference if it's like, oh, we're at 900,000. We wanted to go to 1.1 million and the carrier said no versus the carrier has an

underwriting cap of 3 million and that's their cap. And so they just don't go over $3 million which I think is a different question. So.

Yeah. These are much lower values to be clear. But I appreciate I would love to follow-up with you. Appreciate the time, Madam Chair. Thank you.

Welcome. Assemblyman Harabedian.

Thank you, Madam Chair, and thank you again for the testimony and and the information. I don't think we're gonna solve the economics here. I think the first three I think all of the witnesses talked about actuarial sound, market conditions, which this hearing really isn't about.

And I think we can all agree that until we have, changes in the market, you're not gonna solve for getting people off the FAIR plan. Taking that, as an assumption though, going forward, you know, we're really talking about how can we improve the clearing house program.

And and the first question I have is if there's only 11 residential insurers taking taking part in the program, are your I guess, to to the two of you, are your clients one of those 11?

So I'll be candid. I don't know offhand who's in there. I did I heard from the FAIR Plan, by the way, the other day that there's 15 admitted carriers in there and another 13 or so surplus lines. But, you know, there's a 100 admitted carriers in the market. So, obviously, we want more people in the program.

And I don't know specifically which PIF members are in there or not. I will say that for a lot of most many PIF member companies sell what's called the difference in condition policy, and so that wraps around the FAIR plan policy.

And so they don't necessarily need to go through the clearing house because they already have a relationship with that customer through the DIC. And I know, for example, some PIF member companies that have made SIS filings, they're gonna start there.

They'll say, I already have an existing relationship with this customer. I'm already selling them their DIC, so I'm just gonna contact them that way and not get caught up in sort of the operational friction that folks have been talking about.

And so at this juncture, again, there just hasn't been a lot of call to go into the clearing house. And then, again, there's a lot of business already outside of it as well. But not to be repetitive, but, obviously, with the hope is as we get into the CIS, that's gonna exhaust and then the clearing house can be more important.

We also do not know specifically, what surplus line carriers are operating in the market, in the clearinghouse. That is not information that comes to us. So we really don't have any better idea than, and Sarah and

Nor do I, but I would say 15 carriers could be a major percentage of the residential market depending on who they are. Because although, you know, John mentions there's over a 100 that are theoretically licensed right homeowners. When you look at the market share, I think it takes about 12 carriers to get about 90% of the market.

So yeah. Assuming it's 11 or 15. I guess, why don't I'm just curious. Why don't you know whether members of your coalitions clients are taking part in this or not. I guess, whether they are or not is is a question that we should be able to answer and why they're not if they're not is a and I'm not as worried about the surplus lines. I'm obviously worried about the admitted, residential insurers.

I mean, certainly, we can go back and ask them. There's not there's I don't think there is a barrier to us finding out. I think, you know, again, to be candid, prior to this hearing, I don't think we'd had a significant conversation about the clearing house, you know, since the bill went through and the concept was in place,

and then the market's been deteriorating. And we've been so focused on what's you know, for two you know, for three years after the bill passed, it was how do we get the market back? We got into the CIS discussion, then it was get all the CIS rules and regs in place to re you know, start to rebuild the market.

And, I think the timing of the hearing is good to start this discussion again, but the focus just hasn't been on the clearing house. So, you know, I don't wanna give you the impression that there's a barrier to us going and asking that and finding out who's in the clearing house or not.

It's just that's that's a transaction that happens between the fare plan and the carrier, and it's just not routine information that comes to us as an association. But it's not, like, it's, you know, national security secret.

Yeah. No. I was worried. Coming into an outcomes review hearing on a program, I would have imagined that you talked to member companies and clients about the program. And if you didn't do that, I guess, how are we I mean, this is this is a very specific type of hearing. Right?

We're trying to figure out whether a program that was implemented by a specific bill is working. And I'm just curious, did you actually have conversations with any of your members that actually use it? Yeah. Okay.

I didn't.

So which which members are actually using it?

I think the easiest answer would be just ask the fair plan who's got a relationship with them. And they actually go to the local level.

I can go to them and ask them, but do you have that information?

No, I wanna say. So, I mean, the questions that, frankly, I started with were what is your experience with the clearing house program? What are the barriers? If you have any, you know, those were the types of questions that I was exploring with the member companies coming into this hearing, You know?

I do.

And and to be fair, you know, last week, as you know, there was the other hearing on what's happening with tribal affairs and the cost of insurance down there. And so you're the it's there's a lot going on this year. And so trying to triage and get to this and then start asking those questions.

And then, of course, it did pop into my head to say, how many companies are using it? It you know, I will admit that I did not think, let me go out and survey specifically who is in and who is out. But certainly, we had conversations about what's working, what's not, are you using it,

how many companies are in, those types of broad questions coming into the hearing.

So is State Farm using it?

Again, I did not ask them specifically, but I would I would say based on the conversations and just knowing where State Farm is right now, as you know, they're broadly not writing, new policies in the state yet. Now they just had their the rate filing that went through.

I know there's conversations with the department, but, you know, if you're not writing new policies, then I think one could sort of reasonably infer why would you be going pulling people out of the clearing house.

Is Allstate using it?

Again, I do not know offhand specifically. Okay.

Yeah. So going to some of your feedback then on how to improve the clearinghouse, Mr. Sektnan, you talked about misaligned incentives. We'll get to the brokers. But Mr. Taylor, you talked about a clear process. And so I guess, you know, you talked about FAIR plan premium data and and wildfire mitigation.

But so what how can we make this process better? I mean, I guess, what what specifically can we make this process better, so that and again, I'm worried more about the admitted carriers, so that we can actually use this as a tool.

No one thinks that this is gonna be a silver bullet, but it's clear that more people are going on than coming off, and this is a tool to use. So how can we make that process better according to your testimony?

Yeah. So, again, I think having the premium data in there is gonna be helpful. So you can immediately analyze, you know, am I within some percentage of what they're paying in the FAIR plan? So as as, you know, Mr. Norwood talked about, people are price shopping the FAIR plan now.

So if I know that I'm 30% more expensive or 40% more expensive, I'm not likely gonna convince that person to to come over to the admitted carrier. So that's an element of it, having that data in there. When talking about sort of a clearer depopulation process, this conversation clearly needs to

I mean, I'll be candid. I don't think this is an immediate, like, this year problem.

happen with the brokers and agents about what's a fair way to compensate them for moving business in and out of of the program. You know, should there be and I think you heard miss Figueroa from the department talk about should there be limited appointments, things of that nature would would improve the process.

We want this to be a problem within the next 2, 3 years. But I think there's a lot of business outside of the clearing house. And, again, carriers have relationships, with their customers that have DIC. So there's gonna be growth in the market with or without the clearing house in the near term.

It's just we're gonna hit a point at which that's gonna Max out, and then it's gonna be better to have a more functional clearing house.

And thanks for that. And, Mr. Sektnan, you said, misaligned incentives for agents. And and I think there's a there there's a bit of a tension there between what we heard from Mr. Norwood and you, and what we heard from Department of Insurance about the roles of of of the agents, the

designated agent versus, being able to basically have an open market. So, what are the misaligned incentives?

Well, I think and Mr. Norwood, I think, spoke to it is the compensation structure for the FAIR plan is not the same. It is for the admitted market, and it should be. I think it's important because California law supports it, that the agent basically owns that business.

And so with that's important to maintain that relationship. I think another thing that might be helpful for companies is to get slightly better underwriting information available on the fair plan policy.

So and like Sharon said, you would need premium, but you also need to get a sense of what you're underwriting. The FAIR plan, as you know, doesn't necessarily underwrite policies unless you're a meth house, they pretty much have to cover you. And so their underwriting guidelines are fairly limited,

but providing if it's possible, provide more information to the carriers who are looking at the business, that'd also be helpful.

So what just so I'm clear, when what proposed reform to the current house program would you make them? Would you would you not then have this requirement to go through the broker of record or would you continue to have that? Because there's obviously gonna be probably a difference of opinion there.

I don't think our member companies have a problem going through the agent broker of record. I think most of them are used to working for it. There might be some need for companies that don't have captive agents to allow for a limited appointment as Florida does.

Remember, the Florida system is different because you really have new carriers that are taking out companies out of citizens, not through their clearing house, but just directly. So I think we need to Kinda understand that and work through it.

Anything to add there, mister Norwood, about broker record versus potentially going just to, you know, straight to the consumer or going around the broker record?

Well, we don't believe that, you know, legislating, you know, getting in between the relationship between the agent and broker and the and their customer is good for either party. You know, the customer relies on their agent broker to know what their coverages are and get it explained to them.

And oftentimes, the the agent and broker they're using are writing other coverages for them, particularly in situations where you've got vineyards and ranches and farms and things like that where the commercial and the personal lines policies intersect.

For the for the broker, obviously, having somebody else take a piece of the business creates possible gaps in coverage, which creates, you know, problems. Obviously, it it interferes with their proprietary proprietary work product.

I mean, you know, so and there and there are just other a lot easier options to go forward with to do that besides going down that that road. Just to clarify, one of the questions that the committee asked is do brokers have incentive to remove policyholders from the FAIR plan?

They have every incentive to to move it out. Again, these coverages that are in the fair plan look, the fair plan's not a great job having to grow from zero almost to where they're at. So there's no criticism of the FAIR plan from our standpoint.

You know, we use it to take care of our client. I say client needs a place to to go, and that's a market, so we'd be able to use that. But from the agent or broker standpoint, you know, the coverage isn't as good. It creates gaps. There's potential problems.

We wanna get them out of that. Secondly, going to the FAIR plan doesn't, as a small business, build relationships with private insurers, and that's what you wanna do as an agent or a broker. And, also, the compensation is better through a private insurer than it is the FAIR plan.

We built that in the FAIR plan. It's you know? So the agent, every reason to move move policyholders out and just, you know, we're just like consumers. Please give us a market, and we'll move it tomorrow.

And we don't need a clearing house to do it, you know, anything else. We just need a market to do it. And, you know, it also is kinda strange in that frustrating a little bit in that, our members don't have the majority of business in the FAIR plan.

Clearly, that's from the large carriers. As Mark said, that top 12 carriers, three of them are independent agency companies. So that's, you know, where the marketplace is. And as Sharon said, I think and then we suggested that a lot of those carriers are gonna go back to people that they used to write.

And so if they just go and take half the business out, that's a 35% reduction in the fare plan overnight, you know, overnight. But it's and that's the more organic way I think things are gonna happen. There's not going to be a point in time where we wake up one day and say, oh, there's a private market's back.

And, oh, by the way, the the rates of the FAIR plan just got a 80% increase. And now we, you know, now we can have something work. I mean, you're gonna see these big carriers that have the the incentive, also the dollars to go through the fair to the process to get their rates done.

They're gonna get that done. They're gonna get back to the marketplace. They're gonna take the easiest path to, you know, in growing their book of businesses. What we're just talking about is going back to the people they used to write. And so I think that's the way this all gonna is gonna happen.

And again, we provide some other options that we think are more efficient, little work that, you know, might help the clearing house be a a tool in that toolbox. But, again, not the they're not gonna it's not gonna be the predominant, thing that'll work to depopulate the plan.

We have to go back to the basics, and that's the private market and the the rate the FAIR Plan is charging.

Yeah. Yeah. And we're not gonna again, we're not gonna solve the that economic problem here. And I don't think the clearing house was supposed to solve it. I think it's more of a process question.

I do think that I'll just leave it with this. I mean, coming into this hearing, I spoke to many of your members, for example, independent brokers who have no idea what this program is. They've never heard of it, and there's zero education on it within coalitions of brokers.

It it sounds like even the residential insurance market might not have a very, you know, firm grasp of what the program is. So all I would say, again, from an outcomes review, maybe there needs to be more required education on this as a tool.

And maybe I mean, obviously, it's a voluntary program. I'm not sure why it couldn't be a requisite that all of the admitted carers take, you know, have some sort of participation in this. Because I think it is a tool for consumers, and I think it's a tool to get people off of the FAIR plan.

It's not a silver bullet, but, you know, I think, obviously, making it voluntary has has caused, I think, a a real, a real lack of participation, a lack of education. And so maybe that's something that we need to approach, and I think this is a timely conversation. So thank you, Madam Chair.

You're welcome, Assemblyman. So I have a couple questions. First one's for Mr. Norwood. Can you describe the measures your client takes upon renewal specifically for a policyholder they have in the FAIR plan?

Yeah. I mean, I think when a renewal's coming up, our members out in the marketplace trying to see, you know, they know from the companies that they're, appointed with, you know, is there is there a market? Is it you know, are they open?

I mean, we have the information here that they're you know, each individual company will have their own either wildfire score restrictions or geographic restrictions or insured value restrictions or restriction on the number of applications the agent or broker can even submit to the company.

So, you know, their people in internally know that and, you know, work through those companies to look for a marketplace. They also then, you know, will go out in many cases to the to the surplus lines market through the surplus lines broker and look for coverage there as well.

I mean, we have this option for you. It's at this price. And as been reported, oftentimes, that price is substantially higher and the consumers, you know, deciding to stay put, stay in place. Because I really do think there's a misimpression out there that the consumers think that rates are gonna

come back at a low you know, and we'll be in a position where the FAIR plan will be the highest, you know, high again, and the the voluntary market rates will be below that. I just think that's probably not gonna happen. So

Alright. Thank you. And then a question for Mr. Taylor and Mr. Sektnan. As part of the the SIS filing, do you have to agree to participate in the clearing house?

I don't well, I'm trying to think because I don't know. In the in the conversations that go on between the department and the carrier I mean, and the carrier, I suppose that could come up, but I'm not aware of if it has at this juncture.

And I think, you know and I guess mister Harabedian's left, but, I mean, these are very smart, sophisticated companies, and so they know they have to make these commitments in the sense and to achieve them. And if they feel like they need to go to the clearing house to get that done, then they're gonna get that done.

And if they think that they can get it through these other relationships and other ways, they'll get it done that way. But I think, you know, folks are aware of it. And if it becomes a tool they need, they're gonna go utilize it. But I just I just don't know offhand if it's a specific part of the SIS filing. Sorry.

I was just gonna say the SIS filings do, offer depopulation of the FAIR plan as an option to meet the requirements to both use catastrophic muscles and reinsurance. It's 5%, and this also applies to commercial, but it doesn't specify they have to come out of the clearing house.

A company that already has placed a number of policies in the FAIR plan could easily take out the policies they placed in the FAIR plan, but they may not be going through the clearinghouse. So there are efforts to depopulate.

And thank you for that. Mr. Sektnan, do your members participate in the clearinghouse in Florida or Louisiana? Do you know?

They do to some degree, and I've talked to some member companies about it. But, again, the situation in Florida is different because, the clearing house is not used very much because there is an ability to take policies directly out of citizens without going through the clearing house in most companies,

particularly in Florida. Because what you have in Florida is you have a lot of new companies, that came in after the, Florida legislature finally fixed their market. And so you have companies coming in and there is a way to build business. They're going after citizens policies, which is.

And last question for anybody. If what are your thoughts if the clearing hills had a sunset?

I said, I don't have strong thoughts on it. I mean, I think that I think right now, it's important to give it the opportunity to see how it evolves in this new environment with the SIS and then see if it becomes the type of tool that we hope it all is or other things start to happen.

You know, I mean, again, just anecdotally, but I think what we see a lot is when carriers come back into an area, the brokers and those neighborhood, you know, asks. You know, everyone starts to know when someone shows up.

And that that's how, you know, that just happened with my brother when I get a house in the woods in Sonoma. And the broker knew everyone who's writing in that area. They didn't need to go to the clearing house. Right?

And so maybe down the road, it becomes a a a less of an important tool because there's these other new technologies that are superseding it. At the moment, I don't think, you know, we have a strong opinion about whether there should be a sunset on it or not.

But I would certainly encourage, let's give it some time. I wouldn't make it too soon. Let's give it some time to play out and then maybe do this again in five years.

I'll be retired by them.

You know, I don't Carol, I mean, I agree with that opinion pretty much. But I'd like to answer our question that you raised earlier about declinations. And, you know, in the non admitted space, there's always been a requirement of three declinations before you go to the non admitted companies.

But the Department of Insurance has a process where you waive those on a list that's called What's the export list? The export list. There's a there's a export list that's developed every year where everybody agrees there's no market.

So when there's no market, you know, in mid market, you don't have to have the three declarations. That's essentially kinda what happened, I think, with the FAIR plan that used to have declarations is that everybody realized what was going on.

And, you know, brokers had a very difficult time getting insurers to basically write you know, sign a piece of paper or to indicate in writing that they weren't gonna write, a particular policy. So it's very difficult to obtain declinations.

They also you know, brokers couldn't not, in some cases, ask companies for more than x number of applications a month, so you could only get so many declinations. So it just became very problematic, you know, to even get to that. So that's why the declarations were taken away.

I mean, that is just a a problem from our standpoint of being able to comply with that just because the market conditions.

Alright. Thank you so much, gentlemen. We appreciate your testimony. Thank you for being here today. At this time, I'd like to open up for public comment. You could please come forward, state your name, affiliation, and provide a brief remark.

Thank you. Actually, I'll kinda bring this back to Luke as I am actually one of the carriers. That's the ENS carriers. Mr. Brown actually just mentioned also, he mentioned Delos and so part of the clearinghouse. We have successfully brought in my name is Robert Feldman, by the way, the CEO of Wow Insurance.

We have successfully brought in a program from London in the E and S markets. We've secured over $100 billion capacity and we are now aggressively looking to depopulate. Clearing House actually in support of Cal FAIR Plan has done an excellent job of putting this together.

I just recently within the last two months became a part of the Clearing House. We are working with brokers. Our challenge, obviously, was to get some of the information that the clearinghouse has.

We're still working with them to do those things together. But we have successfully brought in multiple I have six different carriers now that are looking to populate. And that that's why I kinda went running out the door for the two assemblymen that that walked out the door as I wanna make sure I caught them.

Because bottom line is the way you're gonna change this is with the clearinghouse support. At the same time, making sure that we have options. Fire hardening is a big part of it. I am a speaker for the California Association of Realtors, so I have multiple hats.

That's what they wanna hear. How do they get insurance for their clients? We're able to do these things. There are some challenges with the clearing house, but with the number one thing that we are gonna fix, we're seeing estimations of two to 4% growth per month,

not per year with Cal FAIR plan when we run our numbers. Obviously, there might be different numbers with the Cal Fair plan.

We will turn the tides. I already have them lined up. The clearinghouse is doing the right direction. But it's gonna be more on the E and S market side while the admitted market still works its way out. If I can help with any analytics or information from an E and S standpoint,

we are planning to work with the clearinghouse to give them constant information because I do believe that 700 and whatever was the clearinghouse is a complete missed number at this point.

I know for a fact we have successfully over the last month probably have pushed that number. Okay? So the brokers aren't doing it. So I do think this program is working. I think what happens is it needs to come from someone like us that's really a true I wholesale for multiple carriers,

but also have our own programs. I think that's the analytics that you're looking for, and we would welcome the opportunity to give this committee that information.

Thank you. That's very helpful.

Thank you.

Morning. I think we're still in the morning.

Madam Chair, Members, Peter Ansel, California Farm Bureau, thank you for looking at this issue. When our members go into the FAIR plan, agricultural policies are considered to be commercial policies, which is why we sponsored the SB505 a couple years ago.

And I would just encourage you for what you're doing here and looking at with the residential side of the clearing house. You understand that the commercial policies often tie in our cases. I think somebody, Mr. Norwood, mentioned that the case of farms and ranches, it's often commercial residential side by side.

We need access. When our members go in, they do not expect that their term in the FAIR plan, the the the time that they're gonna spend with the policy and the FAIR plan is beholden to the company that they had a policy with when they first went in or the relationship between brokers and agents

and admitted carriers. What they want is the opportunity to get access to comprehensive affordable insurance again. This is still about access in the admitted market that is broken. We did not expect when we ran $5.5 for the clearinghouse to be a panacea and a cure all,

but we did hope that it would be a tool so that if our members were doing things like home hardening and conducting vegetation management, and if insurers were recognizing that agricultural properties have a lower propagation risk for wildfire,

that they could use the clearinghouse as a mechanism to find those policies that present lower risk and bring them back into the admitted market.

There wasn't an ex there was not an expectation that that would necessarily be with the same policy you went in to the FAIR plan with because what we're hoping for is competition in the marketplace. So access brings back competition, that brings back the ability for people to move out.

So I just encourage that the commercial side isn't forgotten in this because that's for our members where their policies are in the FAIR plan. Thank you.

Thank you so much. Again, I wanna thank all our panelists for coming here today in hopes of improving, the outcome of the FAIR Plan Clearing House program. We'll continue to tackle this issue to ensure Californians have a pathway to the voluntary market as the insurance market stabilizes,

due to the sustainable insurance strategy. This concludes the assembly insurance oversight hearing.