Senate Standing Committee on Insurance

Good afternoon. Welcome. The committee will come to order. Appears we have a quorum, established quorum. Secretary will call the roll.

[Roll Call]

Thank you for that. We have a quorum. Welcome everyone. We have two items on the docket. Before we begin with that, just wanna welcome, senators Richardson and

Menjivar who have, and Menjivar who have, joined, the insurance commission, committee. Excuse me. And welcome and good luck and Godspeed. Two items on the docket including one by the chair, but, I see that Senator Cabaldon is here with respect to, file item number two, SB 1315, the Drive My Car Act. Welcome, Senator. Please proceed when you are ready.

Mr. Chairman and Members, thank you so much. Yeah. I am here to present SB 1315, and I have a a bit to say about the nuance of what we're trying to accomplish here.

And then I wanna make a couple of statements about the future direction that we hope to take if the committee is willing to advance the bill.

California has been the leader in in autonomous driving technologies, from the very beginning, and we have some of the most well developed regulations, testing regimes, and we are the home of the of innovation in that space.

This bill is is intended to fundamentally get at the issues of the integration where where machines, artificial intelligence, and human beings meet. So it's the bill is not intended to affect fully autonomous driving, the Waymos and the other the other cars that are out there.

California has a very substantial regime in that space. Instead, it is in this interstitial space where humans and robots are driving a car a little bit each, and trying to assure that as the technological transition happens on AI autonomous features,

that human beings retain the basic right to drive a car that they bought to drive. It sounds simple. It sounds obvious that, of course, if you buy a car and it has some advanced features on it, that you will always be able to drive it.

But some vehicles are now seen principally as delivery mechanisms for software services and those software services are moving to subscription based services and in which you're also required then to accept software updates.

So the bill, as we began, was trying to get at this issue of how do we assure that as the technology gets better, that we don't reach a point where just overnight, human drivers in California lose the right to drive the car that they bought,

either through the mechanism of the tort system or the insurance system or what have you. And what after extensive conversations, both with the but the insurance industry, with the department, with your staff, and pretty much with each and every one of you.

We've it's become clear that there that the clearer mechanism to address this issue is actually not directly in the insurance space, but instead, it is in the software space of grappling with the ability of a company to,

through a software update, even potentially disabling the ability of a human being to drive their car under some or all circumstances.

And so, I wanna thank the Chair in particular, but many, many others for helping us to think through these issues and to realize some of the both the roadblocks and the dead ends that we were hitting here.

We if the committee is is prepared to allow us to move forward, we would be going to the transportation committee next. And in that committee, we would be proposing to remove the provision the policy provisions with respect to insure to auto insurance and instead shift

to the auto itself in the jurisdiction of that committee to prevent software mandatory software updates from disabling human driving of vehicles that folks purchase in order to drive as human beings.

Thank you, Senator. Appreciate the acknowledgment and the unique circumstances of this bill. I just will say and give you credit, we had a long conversation about the bill, about the procedural progress of the bill, about jurisdiction.

And it may be it may be very premature from a legislative standpoint. And it may be still to be determined and too far into the calendar with respect to our purposes today about where appropriate jurisdiction may ultimately lie and where you wanna move this bill forward.

But I really wanna acknowledge the senators' leadership and guts, for lack of a better word, foreseeing the horizon issue, whether it's ripe or not legislatively.

But it's a complicated issue that will be a reality upon us as a society and will impact numerous overlapping areas of public policy. And so I made the, you know, promise to the author that I would help facilitate the ability to keep the bill alive at least for those purposes.

If that if anything, but to begin an important conversation. And so for that, the center, I give you credit. Given that we are here in hearing today and given, those representations, still procedurally, we do have some obligations as you well know.

And so I have to ask, are there any primary witnesses in support of your legislation? Are there any individuals present that would like to approach to acknowledge or represent support for the bill? I have to ask as well with respect to opposition. I see none.

Are there questions or comments from members of the committee, Senator Becker followed by Senator Rubio?

Yeah. Just make a quick, comment. I think the Chair said it very well. Appreciate you, looking forward and and thinking about what may happen as these technologies are you know, since sometimes, you know, things take longer than projected,

but then happen kind of all at once. Right? So I was I hope that autonomous cars would come before my kids were able to drive. Unfortunately, that didn't happen. But now we do see, the technology, moving very quickly.

And, yeah, some of the scenarios are, you know, potentially Sci fi or what were Sci fi, and we'll discuss my movie script another time in this area.

But, you know, some things that we thought were Science fiction are now or or look like Science fiction are now are now coming closer to reality.

So I appreciate you, you know, tackling this and look forward to, you know, wanna support, move forward, and look forward to seeing how it evolves.

Thank you, Senator. Senator Rubio.

Thank you. Chair, I just wanna add my voice as well because, clearly, this is not, you know, what's in print is not what we're necessarily voting on.

So I just wanna make sure for the record we reiterate and understand that this is gonna be taken out of the insurance realm and, we're allowing you to go fix it where it's appropriate. And so with that, I will support it again,

but very clearly with the understanding that it will not be an insurance related bill. And the author has also, guaranteed verbally and we had a discussion about it, so I appreciate you, willing to to state that for the record.

Thank you, Senator and Vice Chair Nilo.

Thank you, Mr. Chair. I would, echo everything that the Chair said and, Christopher and Aye, excuse me, Senator Cabaldon and Aye, we've known each other a long time. We had a good discussion about this also.

And when I first read the bill, I was kind of confused by the approach but he quickly cleared it up for me.

This would be like me selling somebody a car that they really like. And then six months later taking them a completely different car that they didn't want and taking the car back that they did want and forcing them to keep that car.

That's the extent to which software can be changed on these vehicles. And it is a brave new world that way and I think what he's trying to address makes perfect sense.

I will, Senator Richardson. Would you like to do so? Alright. The bill is moved to keep it along. Please call the roll.

Motion is due pass to transportation committee. [Roll Call]

Thank you. The bill's up by the two. We'll keep it on are we do we have everyone or are we missing Menjivar? We'll place that on call. Thank you, Senator, for your time and efforts.

Thank you for your great indulgence.

Of course. File item two is SB1315 by the Chair. At this time, I'll turn the gavel over to the Vice Chairman. Mister Vice Chairman and Members with your indulgence, we're waiting the arrival of the commissioner who I'm told is right here.

And you as well as staff. All proceed when ready.

Thank you, sir.

Alright, Mr. Vice Chair and Members. Thank you. I'm pleased to present SB 876 and would first like to acknowledge you will take committee amendments as indicated reflected in your staff analysis.

Certainly, I wanna extend my thanks and appreciation to all key stakeholders who we've engaged with with respect to this particular piece of legislation. I'll introduce this bill.

I did so with a specific intention to have a broad conversation about insurance availability and affordability, and also have a conversation specifically about ways in which we can comprehensively reform the claims process.

This represents a broad measure, a complex measure as many of you are are aware and is deeply informed by the awful experience this state had, at its worst so far in January with some of the destruction that we saw in Los Angeles County and surrounding areas.

Out of this pain and suffering of thousands of people, and with the well known and ongoing and anticipated increased propensity for severe wildfires, one thing that's become clear, decades old insurance laws, practices, are no longer sufficient to meet the moment.

A year on from Los Angeles, survivors have to this day continue to report ongoing concerns and problems, many of them legitimate and deserving of attention with accessing insurance benefits, with delays, denials,

and sometimes miscommunications, circumstantial or otherwise, from insurance companies topping the list of concerns. The number of complaints filed in the administrative process with the department have substantially increased since that time.

We are attempting to take a lesson from this situation and seek to find operational ways to reform the claims process, cut red tape, improve payouts, and end delays. As the Chair of this committee, I am committed to balancing the needs of both affordability and availability and to ensuring that policies keep

pace with the needs and the realities of the moment. However, also, that whatever architecture we can move forward is workable and operational and avoids unintended consequences.

This is why I've engaged with the broad coalition of interest groups across the spectrum, including from the insurance industry, and I have heard and listened to their concerns about potential cost impacts of the operation of this bill.

In addition to accepting the committee amends, we have made specific, which, of course, removes the, offer of guaranteed replacement cost, which is a significant and top concern for the insurance industry.

I remain committed to working on issues like the mandatory additional 50% extended replacement cost and the doubling of additional living expense coverage after disaster has been declared before the bill leaves probes.

At the same time, I'll be working with stakeholders to address issues of adjuster delays and restitution on enforcement and penalties for policyholders, critical areas of concern for survivors, and in the opinion of many, critical to address inappropriate conduct where appropriate.

SB 876 has some overlap with some other bills pending before this committee, and I as Chair, intend to work diligently with all stakeholders to try to resolve conflicts with that bill before it is presented here.

As a comprehensive piece of legislation, this bill, tries to fill critical gaps that were brought to our attention in the most destructive ways, protect homeowners at their most vulnerable moment, and remain committed to addressing these gaps while protecting policy owners from increasing costs where we can.

Obviously, with me here today is the honorable insurance commissioner, Ricardo Lara, as well joined by Amy Bach with United Policyholders. And I am informed as well from the commissioner's office we have a technical expert witness available for questions as well. Commissioner?

Thank you. Thank you. Thank you, Vice Chair, Nilo. Good afternoon, committee members. Thank you for the opportunity to testify in strong support of SB 876, the Disaster Recovery Reform Act, a measure on product support and sponsor.

With me today is Deputy Commissioner Tony Signorelli. Before I begin, I wanted to say something plainly. I have overseen California's insurance market through the most difficult period in modern history.

A new era of mega fires and giga fires when insurers were pulling back, curtailing underwriting, and placing caps on new business. I did not inherit a stable market.

I inherited a market in crisis. After years in which tough decisions were delayed or avoided, I did the politically unpopular thing. I acted. So when I hear that the claim claims that this bill is a market destroyer, I have to be honest. I actually scoffed.

Do you really think I would sponsor a bill that would take us backward to the chaos I fought so hard to stabilize? Do you really think I would once again put my department, my staff, or myself through the political attacks, the personal pressure, if I believe that this bill would actually harm the market?

Of course not. SB 876 is about one thing, making disaster recovery faster, clearer, and more fair for the families who have already lost everything. And let me be equally clear, the sustainable insurance strategy is about long term market health.

SB 876 is about what happens after a family loses everything. These are separate issues. And no paid advertising campaign, no slogan, no social media ad should confuse the two. As you all know, California's wildfire reality is now a year round. Fires are larger, faster, and more destructive than ever.

2019 was a definitive turning point for California's wildfire landscape, marking a transition into a new era, an era where a 100,000 acre mega fires and 1,000,000 acre Giga fires became the recurring reality rather than an anomaly.

Last year, 14 destructive fires across LA and San Diego Counties made this particularly clear. As you all know, the Eaton Fire in Altadena and the and the Palisades Fire in Pacific Palisades alone destroyed or damaged more than 16,000 homes.

Over the past year, my department has held multiple insurance workshops, met with survivors across the state, investigated more than 2,000 consumer complaints, and recovered over 250,000,000 for policyholders to date. That's just over one year.

And yet, more than a year later, survivors are still reporting delays, denials, miscommunication, and a claims process that forces them to fight for every single dollar. These are not isolated stories. These are symptoms of a systematic failure. Underinsurance has become the rule, not the exemption.

Replacement cost estimates are outdated. Mandatory building code upgrades have policyholders with insufficient insufficient coverage, and survivors face what they call adjuster roulette, starting over every time a new adjuster is assigned. This is not how we re how a recovery should work.

And let me tell you what SB 876 actually does. It is designed to break the cycle and restore confidence in a system that families depend on at the worst moment of their lives. The bill is about recovery.

It's not about rates. It's about what happens after a family loses everything. Accurate real world replacement cost estimates. Families should not discover after the total loss that they were massively under insured. SB 876 requires insurers to provide estimates that reflect actual construction cost, not outdated numbers.

Stronger coverage options, not mandates. SB 876 requires insurers to offer sufficient extended replacement cost. It does not force anyone to buy this coverage. It simply ensures families have the option to protect themselves. Building code up rich up upgrade coverage.

When rebuilding, homeowners must meet current safety codes. SB 876 strength strengthens coverage so families aren't blindsided by out of pocket cost for mandatory upgrades. Faster, fair claim payments. This bill establishes clear timelines that standardized payments to policyholders.

Actual cash value within thirty days. Replacement cost benefits within thirty days of documentation. Interest on late payments. This ends the slow fragmented claims process that has kept families displaced for months.

SB 876 requires a status report within five days of any adjuster so survivors don't have to start over. For the first time, insurers must also submit pre disaster emergency response plans to the department.

This ensures insurers are ready before the next fire, not scrambling after. It also provides stronger penalties and mandatory restitution. During a declared disaster, penalties for unfair claims practices are doubled and insurers must provide restitution when they violate the law.

This ensures consequences when families are harmed. You will hear arguments today that SB 876 will destroy the market, raise premiums, or drive insurers out of the state.

And let me address this directly. SB 876 is about recovery, not rates. The sustainable insurance strategy is about long term market stability. SB 876 is about what happens after the disaster. These are separate issues.

One that does not undermine the other. SB 876 will likely create additional cost for the insurance sector, specifically in the aftermath of a wildfire, but it also will improve recovery for survivors and the communities.

It will help address repeated concerns that my staff and I have heard directly from countless of wildfire survivors about their claims, experiences with their an with their insurers, and any costs associated with this measure can be reflected in future insurance rates and rate filings subject to review by my department.

The SIS is working and insurers must do their part. Seven insurers have already filed SIS filings. Five have been approved by my department. The first approved plan took effect on March 1. Insurers say, let the SIS work. My response is simple. Where are your rate filings?

We will continue to do our job. We need you to submit your filings. You can't say let the SIS work and not submit your SIS filings. S s p eight seventy six does not create unlimited liability. The bill requires insurers to offer coverage options, not provide them automatically.

Consumers choose what they want and what they can afford. It also helps with faster payments and clear communications, not to destabilize markets. They stabilize families, they stabilize communities, and it stabilizes recovery. Survivors cannot wait years for clarity.

We all have heard too many stories of families still displaced years after the fire. SB 876 addresses the gaps that cause those delays. This bill is not about adding paperwork. It's about adding dignity, stability, and fairness.

When a family loses their home, they should not have to fight their insurer, navigate a maze of adjusters, wait months for payments, or discover they were under insured only after a total loss. California consumers are forced to serve a system that meets the realities of today's disasters,

not the world of twenty years ago. SB 876 is a comprehensive survivor centered reform that strengthens coverage, speeds recovery, and holds insurers accountable when California needs them the most.

I respectfully ask and urge your Aye vote so that wildfire survivors and all disaster survivors can rebuild with dignity, stability, and a full protection of the coverage they actually paid for. Thank you. I'm happy to answer any questions.

We allowed you to go over the two minutes. Sorry. I thought that was appropriate given who the speaker is. Do we have other members, other people attending that wish to speak in favor of this bill?

Myself, sir.

Okay. Let's we'll take the second primary witness first and then I'll take the #MeToo testimony.

Thank you. So my name is Amy Bach. I'm one of the Founders and the Executive Director of a non profit that was born in around the Oakland Berkeley fire and has been serving California insurance consumers now.

This is our thirty fifth year of service and our anniversary and we are very grateful to Chairman Padilla and Vice Chair Niello and all of the committee for considering this measure. We also will be urging your Aye vote.

Our organization has been working in the aftermath of wildfires for all that time and I've seen firsthand the issues that this bill is very narrowly tailored to address. So everything that this bill takes aim at are the exact same problems that consumers have been bringing to our organization.

I provided the committee staff with our twelve month survey results from the LA fires. You know, this body has enacted many previous measures over the years and don't worry, I'm not going to try to match his time. I appreciate your indulgence.

I'm keeping track.

To improve the prompt and full payment of insurance funds to disaster impacted households, prevent people from being under insured and or taken advantage of, avoid claim delays, reduce the hassles of things like itemizing every single peppered salt shaker that they lost and and avoid claims delays

and disputes and give this very important agency the tools that they need to keep tabs on the market. Because, obviously, we want, as the commissioner said, we want people's policies to work for them.

We want, the insurance they've invested in to deliver that peace of mind that it's advertised to give them. We don't want them having to run to lawyers to get help and file lawsuits.

And and that is a a core of what we're trying to do here is build on what you've already done and what we now know still needs more work. So there's a lot of specifics in this proposal. Our organization works very closely with the complaint handling unit. Mr. Signorelli over here is the bureau chief.

And so, we we work together on these issues. And and we, my organization, we give people DIY guidance and then we always say, next stop, if you can't work it out with your insurer directly, you should go to the DOI. So they're spot on with everything that they've got in this bill.

And when we have been doing these surveys to find what people's insurance gaps are, it typically has been two thirds of disaster survivors come up short on what they need to put the house back that they lost. After the LA fires, only 7% of the people who answered our survey said they had enough insurance.

So we have a we haven't solved the under insurance problem.

You could conclude.

I sure will. So we've got the that the under insurance fix, code upgrades. We want people to rebuild resilient. We want them to comply with codes for lots of reasons. And finally, the ALE, we did you did a great job giving people up to three years, but then the dollar amounts are not enough.

So we have to fix that. And then giving them that one place, the insurer, one adjuster the whole time will really help people get their claims resolved. And then finally, we don't you already gave people the right to replace by buying instead of rebuilding. There's a lot of good reasons for that.

We just wanna make it more feasible for them to do that without leaving money on the table. I thank you for your time, and I do urge your Aye vote.

Okay. Now, others in the room, state your name, who you're with, and your position on the bill.

Thank you, Chair, Vice Chair, Members of the committee. Marissa Hagerman with Tratten Price Consulting, registering support on behalf of California Environmental Voters. Thank you.

Good afternoon. Nicole Kurian with the Office of Los Angeles Mayor Karen Bass in strong support. Thank you.

Keith Kulich on behalf of AARP California in support.

Any others in support? We got a Tweener.

Good afternoon, Mr. Vice Chair and Members of the committee. I'm Robert Harrell. I'm the Executive Director of the Consumer Federation of California. Just a couple quick points. We have no official position on the bill.

We are encouraged by many of the provisions within the bill. Hope they survive. I would respectfully disagree with the characterization that the commissioner made that he inherited a market in crisis.

I think he inherited a challenging market as would anybody, but so did his predecessor and two predecessors before.

I'm being very generous Okay. This is #MeToo testimony.

Fair enough. Two quick points. One, under insurance has been a problem for a long time. Historically, attempts to resolve underinsurance have been resisted vehemently by the insurance industry.

Number two, I do think there's a big problem with what I refer to as the adjuster du jour, And I know that that's one of the provisions that we have to try to do.

These are issues the other witnesses have covered. Appreciate the echoing, but I gather yours in support of the bill. No position. That's right.

Excuse me. Okay. Now moving to the opposition. Primary witnesses in opposition and given the deference that I gave in terms of time with those in favor, I will do my best to keep it equal for the opposition. You may proceed when ready and in whatever, excuse me, order you would like.

Oh, you want me to go first,

Kick us off.

Okay. Good afternoon, Mr. Vice Chair, Members of the committee. Thank you so much for the opportunity to provide testimony today. My name is Denny Ritter, and I'm here on behalf of the American Property Casualty Insurance Association.

On behalf of our member companies, I am here today to respectfully oppose SB 876. While also acknowledging the author's willingness to work with stakeholders on amendments.

Sincerely appreciate, the numerous meetings with you, your office, and the sponsors of the bill. I think we counted eight. We really appreciate the author's intent to remove the guaranteed replacement cost requirement.

As you identified, that was a major concern for, for our members, and so greatly appreciate that.

However, even with that amendment, SB 876 remains an extremely broad measure containing more than 20 policy provisions that taken together, we are concerned would materially increase the cost, of insurance and reduce flexibility in an already fragile insurance market.

We're really concerned about the cumulative and unintended consequences of the remaining provisions. The bill does include multiple mandatory coverage expansions, such as increased extended replacement cost and higher additional living limits that will need to be

priced into every homeowners policy statewide regardless of location or consumer preference. While these benefits may sound helpful in isolation, the reality is that these mandates will increase premiums for all Californians, including those in lower risk areas.

SB 876 also converts certain coverages into automatic payments. By requiring, 100% of contents coverage without an inventory or evaluation. This issue was just negotiated in Senator Allen's SB 495 last year, where insurers agreed to provide 60% with an inventory.

This just took effect four months ago, and so the industry is very concerned that this is up for renegotiation so quickly. And again, this component risks higher insurance costs that ultimately flow back to consumers.

And as the commissioner noted, this is in the midst of the sustainable insurance strategies adoption. We are concerned that proposals like this will slow that adoption and that progress.

We appreciate the author's commitment to continue negotiations as the bill moves forward, particularly to narrow its scope, address our affordability impacts, and avoid further destabilizing the market. We do acknowledge their components of the bill that I think we wanna work on.

You know, the components dealing with how wildfire victims are treated by their companies, that's important, and that's something we're committed to working on.

We remain ready and willing to work collaboratively good grief, with the author, the committee, and the Department of Insurance on targeted workable solutions that meaningfully improve outcomes for consumers.

So for the these reasons, while we do really appreciate the amendments being taken today, the trades must APCA must respectfully remain opposed. Thank you.

Thank you. Yes. Thank you. Good afternoon, Mr. Vice Chair and Members. Seren Taylor on behalf of the Personal Insurance Federation of California. Also, thank you for the opportunity to share our concerns regarding SB 876.

And we do wanna first thank the committee for the proposed amendments, and we greatly appreciate Senator Padilla's commitment to further reduce the financial impact on consumers.

Now SB 876 set the table for an expansive discussion among stakeholders, and there have been constructive conversations. However, there is a lot more work to be done.

We believe without additional changes, the bill will make homeowners insurance significantly more expensive while also making it harder to find coverage.

Our cost impact analysis indicates premiums could rise by 15 to 20%, which is about $200 to $350 a year on average and well over $1,000 for those in high risk areas.

The bill layers more than 20 new mandates onto an already strained market, mandates like higher extended replacement cost, expanded additional living expenses, and full content payouts. These are not marginal changes.

They are fundamentally increased claim severity across every policy in the state, and those costs will drive sticker shock in premium statewide. Even consumers in low risk areas will pay more for benefits they may not want or even need.

At a time when affordability is already already a crisis, we think the bill moves in the wrong direction. It's also concerning that the bill weakens claims controls by requiring rapid payouts without appropriate verification, which increases fraud risk and inflates costs.

I think the most serious consumer harm that will come from reduced availability. And as cost rise and liabilities expand, insurers could be forced to pull back, writing fewer new policies and non renewing more existing ones. Now we've already seen this dynamic in California.

Rather than resolving the problem, we think that SB 876 will accelerate the problem, and we wanna see consumers have more stable, affordable, and available insurance, and we're concerned that this bill will undermine those efforts. So respectfully urge a no vote, and thank you.

Thank you. Others in, the room that are opposed?

Good afternoon. Sherry McHugh representing the Pacific Association of Domestic Insurance Companies, respectfully in opposition, and we look forward to working with the author and the department, as the bill moves through the process. Thank you.

Thank you. Annalie Augustine on behalf of the Civil Justice Association of California, also respectfully opposed. Thank you.

Good afternoon, Mr. Vice Chair and Members. Kareem Greasy on behalf of the California Building Industry Association with a respectful oppose unless amended position.

Very grateful to the author and to the commissioner for their leadership on these issues and we look forward to continuing to engage on the measure. Thank you.

Others who are opposed seeing none come forward. Bring it back to the committee. Senator Becker, then Senator Rubio, then Senator Richardson.

Well, thank you. First, I'd like to thank the insurance commissioner for being here and for all your efforts to stabilize the market and get us back on track and bring insurers back to California. Thank you for those efforts.

I wanna thank our Chair for bringing forward this comprehensive and meaty piece of legislation. I know there's much conversation we'll have today and and, you know, going forward on this bill.

And I'm sure there are some things to iron out, and I'm sure there I know there are folks including our former chair who who know more about these topics than I do.

I just do wanna, from my vantage point in the northern part of the state, I didn't don't represent, obviously, the folks that were affected in in in Southern California, but I do wanna remind folks that we are talking about a total loss situation.

Right? We're talking about a total loss situation. And I do need to read because I've checked in a friend, you know, a year after the fire and he sent me a long list of things.

I'm gonna take the opportunity to to read here, because this this is relevant and and, you know, he said in terms of insurance, different companies pay out different percentages of personal property.

Safeco paid out 50% to us. We were others have received 60%, 70% or more. A Safeco, which is a company I'm happy to discuss with afterwards, is requiring a list of items or a series of two to three hour verbal interviews to go room by room.

Why did they write and bind a policy for personal property coverage that they want itemized now down to the number of paper clips and jars of peanut butter. If I'm paying for coverage that was bound, pay out.

It's not simply about the money either. I do not want to torture myself going through everything I used to have and no longer own. It's terrible. It's just an email that I received relatively recently. On the ALE coverage, which again is a subject I'm I'm less knowledgeable about.

I wanna dive in, but he he does talk about how in his case, you know, it's a high demand area and low inventory. And the AOE doesn't cover our living expenses. It was a deal we cut early on before we understood what would be required.

This insurance company I mentioned earlier is now saying they'll only cover Ale for another year despite the fact that it would take longer than a year to get to plan, get permits and rebuild.

A lot of other stuff in here I could read, but I did wanna share that. So I appreciate gives me personally getting someone who doesn't represent these areas. But I've heard a lot certainly from my colleagues personal understanding of the toll this is all taken.

And it make me feel as a lawmaker that there has to be a better way. And I appreciate, you are working to find, a better way for these people who have experienced total loss. And again, I know there's ongoing conversations to be had and and changes were already made in this committee.

But, I do appreciate that you're taking this on and and and moving forward in this area. Thank you.

Senator Rubio.

Thank you, Vice Chair. Appreciate it. You know, first of all, I wanna thank, insurance commissioner. I since I've been working with you for the last seven years, at least, I wanna validate the work that you've done. You know, we spend so many hours even on holidays and even on weekends.

So at least I wanna just take a moment to say thank you. The work that you've done has, required a lot of attention and, you certainly have been very present through our conversation. So thank you. Secondly, I know that, we're drilling through we're going through some very difficult times and I think the insurance

commissioner stated earlier we used to have fire seasons and now they're gone. This is our new normal and the more fires we have, the more things we have to fix.

And I appreciate the author of some of the conversations we've had and it's about sitting down with the stakeholders and coming to to a good middle ground where we're making sure that every person is taken care of. This is the most difficult time.

I've also toured the impacted areas. I've spoken to so many victims, and it's heartbreaking. I can't even put myself in their, their shoes. So thank you for trying to ensure that they're taken care of in their most difficult and dire times.

But, I also appreciate your your willingness to discuss some of the areas that, you know, can potentially impact the affordability of insurance. We know that insurance, right now is very high and the availability crisis still lingers. And thank you for agreeing to some of the amendments that we discussed.

And moving forward, you agreed to continue to work on some of the issues that that I think we can find consensus on. So appreciate it. And thank you to Amy, who I've worked with as well. Thank you for the work you do.

Senator Richardson.

Thank you. I'm gonna start with a couple first of all, it's nice to meet you in person, insurance commissioner. I've seen you a couple times many years ago, but good to see you and thank you for your service. We don't say that enough.

I'm gonna start off with some general comments and then I'll get into some questions. For me and for what I hear of people in my district, the biggest thing people want to see regarding insurance is that number one, it's assessable.

That if a person is buying a home or changing coverage or has a different life experience, that they can actually call a varying group of insurance companies and actually get insurance. The second thing people say to me is how expensive the insurance is.

And even if they could get the insurance, in many cases, they're afraid that they can afford it. So I actually asked to be on this committee, and I requested to be on the committee because I was concerned with those two points.

And so I'm hoping in conjunction with the author, with yourself, the insurance commissioner, and all Members of this committee that we would and now I'm just making a broad statement before I get into my questions of the bill.

I'm really hoping that we will be able to bring legislation progress that would, one, figure out how can we get insurance companies back to California. Because we don't have enough, we don't have enough policies that are available, and they're certainly not affordable.

So for me, that's really what I wanna talk about is how can we get there. The second thing is, insurance commissioner, you mentioned this is a new error era.

For me, I would really like to see us be able to create a fund that when and I noticed you said I noticed I said when, that when these disasters occur, that we have a funding source to help.

And because we can't predict whether it's gonna be a major fire, whether it's gonna be a major earthquake, I mean, flood, who knows what's gonna happen. And I just really think we're, as legislators, we're not doing our part by not thinking far enough ahead.

So for me, I've heard terms in my previous positions, infrastructure banks, whatever it is. But I really do think and I'm willing to work with anyone who's willing to do so, to create some sort of fund that owners put in, the state puts in, the industry puts in, we all put in, so we have some money

so when something happens, we can help make people whole. Why do I say that? Okay. So I just sitting here, you know, utilizing, I won't say what device. We don't wanna give companies preferential treatment. But I on my device, I looked up and I said, how many homes were destroyed?

In the Eaton Fire, 9,418 homes were destroyed. Nine imagine 9,418 homes. And of those, ten seventy one were damaged. In Palisades, 6,833 homes were destroyed. That's over 16,000 homes.

Then I did the math because I have an MBA. I did the math and I said, how many average homes are in a block? 30 to 70. So I used the number 50 in the middle. I divided 16,200 by 50 homes.

That's 324 blocks. I don't think anyone could have imagined that we would have fires that would destroy 324 blocks. So to me, what I'm hoping the author and the insurance commissioner and this committee we will be able to do. I'm gonna support the bill moving forward.

But I'm hoping that between now and appropes and some of the commitments that you made, we will be able to work on. Because, you know, I have an MBA. I've had a small business myself.

I don't believe any insurance company anticipated, and I am not on the for the insurance companies by any means, But I don't think any business would go into business anticipating and building in a sufficient amount of profit to do business to anticipate they were gonna

need to pay off on 16,000 homes. I just I'm sure no one anticipated that. That's like me.

You know, if I had a business and I had to buy supplies, I wouldn't buy supplies for twenty, thirty, 40 times something of what I need that I don't think I'm gonna need. I mean, people, we just don't do that. So I really do not believe that the answer is, some of the things that are in the bill.

I grew up knowing that if I have a home and I add an ADU to my home, it's my responsibility as the owner to go to the insurance company and say, I now have added 300 square feet to my home, and I need to increase my coverage by whatever is assumed the value, a $100,000.

I always thought that was my responsibility. I never dreamed that I would think as is presented in the bill that we would think that the insurance company would be I mean, it's I'm about fairness. I'm all in on 90% of what was said, but some of it just doesn't even seem to be fair.

How would we expect a company to cover something that they don't even know, exists in some cases because a person could or could not have done permits and different issues. But my point is just I think we have to get back to some of, I don't want to coin a governor's, commercials,

but I think we kind of have to get back to the basics and it I just don't see how we can take that responsibility for me as a property owner. I think it's my responsibility as a property owner.

That's what I've always been told. If I buy jewelry, I've been told you're supposed to notify your insurance company. So how this 50%, a 100%, it just seems really not a fair way for us to get to my end point, which is my goal that we need insurance companies.

So I'm gonna support the bill, as I said. However, I would like to see us look at things like rather than requiring 50% or a 100%, say to me as a property owner, okay, it's your responsibility to advise your insurance company, which I think most policies say. And then say, okay.

Now the insurance companies aren't off the hook. If I call them and I say I've added an ADU, I don't think they should be able to kick me off of my insurance. I don't think that that's fair.

So some of the things that the insurance commissioner has said, yes, it's not fair if someone has been paying on a policy and all of a sudden an insurance company flies a drone over a senior's house.

This happened to my mother and said, Oh, we're not gonna ensure you because the gate is bad. You need to fix the gate. I mean there's gonna have to be some fairness.

And I trust that the author, the Chairman of this committee and the insurance commissioner can help us get to some sort of fairness. So I'm in with claim reform.

I'm in with that if a property owner comes to an insurance company that they have coverage for and they've paid for and they say, I've added space, I bought jewelry, I did whatever it is. I think that they should have to provide the insurance and not dump you.

But should we require them to pay for something, that really is, I think in my mind, my responsibility to advise them of. And to my knowledge, has always been in California since I've grown up. The next thing and I'll be more brief on my responses.

When I look at these numbers what also concerns me are people in my district. So not all of my district but a large portion of my district.

I wanna make sure that what we're proposing is not gonna be smoothed over to impact the cost of everyone who needs a policy is now paying for what someone chooses to live in maybe a high risk area.

I think if a person lives in a high risk area, they know they move there to a high risk area, then they should pay the appropriate additional cost based upon the risk that they are now taking.

But should someone who lives in Compton, who's not living on the bluff have to pay a 100 more dollars or 200 more dollars to make up for some of these mandates of something to help another group. No. I don't think that that's fair.

So, I'm well aware as a as a member that we have time frames that we have to get bills in. We have to get amendments in. Many times, you know, they are not really kind in the work we need to do.

But I just want to applaud you as an author for addressing I think one of the major issues that was brought before you. You have expressed an interest in addressing others.

I know you to be a man of your word and so I just wanted to share some of my thoughts that I hope will be discussed between now and as your bill moves forward and as this committee continues. And then lastly, I just had two questions for the commissioner.

Why do you, think that the insurance, companies have left California? What would you say?

Well, I will tell you that they're not leaving California. And.

Then let me rephrase my question. Why do you feel that companies aren't offering policies, more policies to people in California?

So Senator Richardson, I would love to sit down with you and kind of explain to you the entire sustainable insurance strategy in your office. To kinda tell you kinda how we got here and how we are stabilizing the market in a way that's innovative.

We cannot go back to basics in California. The climate, there's no way it's gonna allow us to do that.

And so what we've engaged in the last several five, four years has really been two things, Really modernizing the regulatory statutes that we have been operating under in California, which were completely 30 years old,

and were really not allowing us to modernize the way we saw insurance and in a changing climate. And really, work to negotiate this with the industry about what tools they needed to help them understand better how climate was affecting where they where they covered, how they covered,

and why they were curtailing the underwriting, and why they were choosing to create gap caps. And that was the cost of reinsurance.

California was one of the first the only states that didn't allow for a pass through on reinsurance rates and didn't allow for the use of I'm sorry. I know that that some of the senators already know this, but didn't allow for the use of forward looking technology like catastrophic models, for example.

And so we embarked on a couple year journey of, if I give you these two things that you have been asking for for the last thirty years, what do consumers get? Because this is gonna increase the cost of your premiums.

So what guarantees do I get for coverage in the wildfire distress areas? Right? And so we engaged in what we felt, and I think the industry and some consumers can tell you was really forward looking visionary strategy that gives us guarantees that one insurance companies are not gonna

abandon these communities like they used to before and some guarantees that other states do not have. Insurance companies in other states can submit a rate file and say, we want 50% rate increase and they that gets implemented with no guarantees they're gonna ever come back

to that community that was ravaged by a fire, say, in Boulder. We don't have that anymore. But they need to submit they need to submit they need to submit the rate files. So when they say, let's let the assist work, that's great.

But you need to submit your rate file so that you are now subject to these new rules. Right? And so they sit here and say, yeah, let's let the sustainable insurance strategy work.

And by the way, we have six companies that have and are now writing in these communities, but we need the rest of them to do the same thing. So when they tell you, let the sustainable insurance strategy work, then let us do our job.

Submit your rate file under these new rules so then then we can hold you accountable to writing in these areas. Right? And that real fast way to explain you the years of workthat we've done. And really years of work that have really modernized our system here in California.

Now this bill really to to the credit of our Chairman and really working this is the piece that gets to all of the consumer complaints that we have heard, not just from the LA fires, but from the over 123 fires that are catastrophic fires that have happened since 2019 to my tenure.

Tom was the end of my tenure. And us being able now to have an honest conversation with you all, with the industry, with consumer groups who have said, why haven't you done this, this, this? And these are the issues that we're seeing.

And so when we hear about cost and the industry come and say, this is gonna increase the cost. Well, let's have that conversation because we can't have it in a vacuum.

We need to have it in an open dialogue in a legislative process that where we can actually see how much is this gonna increase. And maybe for consumers, they just want to know how much is this gonna increase my premiums so that we can actually have this conversation.

So we're finally bringing you a comprehensive bill where we're negotiating. We're having an open conversation about these critical issues that for years consumers have been asking us to take. And so this is the dialogue that you're seeing.

And this is just the beginning as as we've said. But every single one of these issues has been brought to us and have been informed by every single catastrophic fire that has taken place at every part of the state.

And so there's other legislation that's specific to some of the issues that we've learned directly from the LA fires, which again are unprecedented. But this is the consumer portion of these reforms. And I don't mind having the conversation of is this gonna increase cost for premiums?

Is this gonna increase rates? Is this gonna but let's have that conversation because I don't want it to be done in a vacuum where consumers are not informed. Because there's some consumer groups that say this bill doesn't go far enough.

There's some consumer groups that say, you know, you should add more. But I wanted to, for the first time, have an actual dialogue with the legislature, with the industry, with consumer groups, and the Department of Insurance, and figure out what are the things that we're willing to do to

increase consumer protection and really be open about how this is gonna impact the market and how this is gonna increase or decrease the cost for for these policies. We just want consumers to have the choice.

If they know that this is gonna cost more, give them the option to make that decision for their families and themselves. And as you said, people I kinda disagree with you a little bit.

I think just in my experience, I think a lot of people have been pushed out of the urban core because of cost into these environmentally sensitive areas. I do understand that there's some we're not just talking about ski chalets in Lake Tahoe,

but a lot of these people that I've met are retirees that were pushed out of the urban core, who cannot afford to live in the urban areas.

And you also brought up a very important point that gets lost in the media and gets lost in the conversations around rebuilding. Insurance gets treated separate in terms of reconstruction. Insurance has to be included in the overall discussion.

How we build? Where we're building? What materials we're using, building cold upgrades, where you're gonna plan a community. Insurance has to be part of that conversation now. It can't be an afterthought.

And the way it gets reported, it's always a separate issue. It has to be brought into the fold as the mix of everything. Right? And building building permits, all that has to be built into the same thing.

And so that's what Amy has been working with her team to build all that into integrated together as well.

So it's not just kind of an afterthought or just one thing that gets singled out. And so it really has to the next commissioner is gonna really have to work with our local governments because this isn't going away. Floods are gonna continue. Fires are gonna continue. Earthquakes.

And so I agree. We need to be much more integrated. So this is, again, to just end this, and I'm sorry, Mr. Chair. I didn't let you answer, but this is the consumer piece of it. And let's have that honest dialogue and figure out where we land so that consumers know and where we where we all end up here.

And we're all being open. This is an open process so they understand where we're thinking. But this is what this bill seeks to do and we're just in the beginning of it.

So I wanted to extend to you the same fairness of your lengthy response of my lengthy question. But I would say in response to your response, I still didn't hear you answer why they're not providing the policies.

And what I got from all of what you just said is that this is the consumer approach. So I do look forward to meeting with you and learning more.

My only, takeaway from that would be to the author that in addition to the open consumer discussion, we also have to have a open discussion which you alluded to, which is how much is it gonna cost, who is gonna pay for it.

And again, what I wanna make sure is we're not implementing a policy that is dealing with one problem, but everyone is paying for it. Everyone who does not have that problem. So we're not gonna solve that today at this moment and I get that.

But I hope that we will have that comprehensive discussion and make sure we're answering all those questions so we can make the right decisions for California which I know both of you are committed to doing. Thank you for being here.

And Senator Menjivar.

This being my first this being my first, presence in insurance committee as my staff. Okay. Are we getting eased into in my first committee? She's like, yes, there's two bills. I was like, great.

And she's like, well one of them is 22 bills in one. So I I have a lot of questions, so I'll be concise with them. I'll start with the first one. Ma'am, you talked about a survey. I'm wondering in the survey, people were asked if they're okay with paying higher premiums if more coverage is given.

That's a great question. This was a recovery survey. So it wasn't it it it was specifically aimed at people who lost a home or had their home damaged. How's it going?

So we have a separate survey of California home insurance survey where we have been monitoring for years because we are also we have a separate work stream aimed at restoring more options and addressing the reasons why insurers have pulled back in some areas,

and where we are asking people what are you paying now, what were you paying. But we have not tried to, you know, put a price tag on what these provisions would cost.

Partially, because some of the ones that we're suggesting though that we support the most, which is the the offer of a 50% extended replacement cost, that's optional. Right? We're not forcing that on people.

And I think as Senator Richardson pointed out, the because these this bill really only gets triggered in the event of a total loss in a declared disaster wildfire, they're not they're not going to affect they're not insurers are not gonna have I mean, even with 18,000 homes that went down in Paradise

and 16,000 here, that's still only a fraction of the total number of insured homes. So it's still not should not cost the insurers the kind of significant

But it's still at a higher average compared to other states. We are dramatically increasing with our disasters. I will say that.

We are, but also our insurance rates are nowhere near the top across the country, which is you sort of that's part of the reason why insurers have been putting hitting pause in some areas. Is that they feel like they need they their rate they need to charge more. They need to approve of charge more.

Staying on the conversation premiums to the opposition, if higher premiums are needed in my short three months of learning about insurance here, I've come to learn that it's a slow process to get approval on rate increases.

How would you then be able maybe this is two part with the commissioner too. Be able then to increase to get higher rates to address if this bill, whatever part of it moves forward, you need to increase your rates.

How much time would you get to be able to increase that to offset potential costs?

Okay. So if I understand that question correctly, how much time would we need to.

Would you be able to get those premium rates in time to implement some of these things?

I guess, I assume the effective date of the bill would be January 1, 2027. Is that correct? And it would pass in, what, September year? So historically, no. We have not gotten rate approvals in three months, and we're closer to a year.

Okay.

Depending on the line of insurance.

Commissioner, can you address that?

Oh, yeah. So part of our

A concise.

Yeah. No. Well, I don't I think I mean, I think it's a bit disingenuous because under my administration, we've actually cut that down. And for those that have filed under the sustainable insurance strategy, every single rate file has been done in record time.

And I'm actually also working on a regulation that's gonna require that all the rate files meet the actual that meet the standard within that was set under Prop 103 that says a 120 days.

So I'm trying to put everything in order to go back to where the initial intent went. Back in the day, it took years. Absolutely. But they cannot say that that has been the case under my administration, which is why I've gotten so much heat.

The opposition mentioned 15 to 25% premium increases on average. It I'd like the author if, you know, in these conversations, what what you're taking, what you're hearing both is that something the commissioner would you approve a 15 and 25% increase?

That seems a lot. And, Senator, what are we thinking about this affordability piece?

Mister Vice Chairman, Senator, thank you for the question, and thanks for the lively dialogue. I've been enjoying the heck out of this. Good to be a spectator as an author as much as the author. Look. Broadly speaking, Senator, the cost is always front of mind.

Right? Because that directly relates to accessibility and solvency. So if you don't address cost broadly in the insurance industry and underwriting and assessing cost, making sure that cost estimates align with product that's available for consumers to purchase and that

they're able to actually capitalize that and and pay out claims, then the whole system falls apart. And we wanna talk about cost when people are are underinsured or they can't sustain themselves in a time of extreme financial loss.

Society as a whole and ratepayers as a whole actually pay more. So cost is always in the eye of the beholder. But on the surface, I will say as as I we're engaging in a respectful dialogue with our, folks whose job it is to represent the industry. It's important as you all know,

Senator, to remember that there'll be a lot of, calculations, numbers, data put forward in the legislative process that are asserted, some of which have some validity, some of which it always turns out don't.

So as I said in my when I presented the bill, I think you have to remember that the this bill is operating in the context of a very complex changing shifting market to the commissioner's points about the nature of the market today versus twenty, thirty years ago

when 1988 when prop 103 went on the ballot. That said, the bill primarily focuses on circumstances affecting loss in a disaster scenario and the unique dynamics that are occurring in that situation and making sure that there is a modern responsiveness and

transparency to the policyholder and that there is product available as an option to policyholders either as an administrative extension on an existing indemnity or as an opportunity, to have access to product that will help make them whole in a crisis.

So it's a very market driven framework that looks at some of these circumstances. I know there's gonna be objections and assertions about cost on some of the penalties and provisions and oversight on some of the timelines.

People will always have different opinions about whether you can actually comply with an administrative regulation that says you have to pay out in a certain number of days or you have to respond with a certain amount of documents.

But at the end of the day, I think the broad intent here is to bring the claims process for people who are suffering the worst experience of their lives into the twenty first century. But to your question, Senator, cost is always front of mind for me.

I think it is for the department. I think it is for the industry because there are adverse impacts to all of us if we don't carefully be certain about what those impacts will be when we look at changes in legislation or rule making. So, yes, absolutely.

I definitely would be interested if the poll exists somewhere around consumer willing to pay if they can recover. I think that'd be great. I have so many questions, commissioner, so I gotta move on to the next one.

Opposition, under the additional living expenses, one of the provision is regarding the fair rental value in lieu. On average, our policyholder is submitting receipts that end up totaling the total Max.

And if that's always happening, what's the problem with just paying out the total Max?

I mean so, Seren Taylor for the Personal Insurance Federation. I mean, I have to be honest, I do not have data on are are they submitting the Max? We could, I suppose, try to I don't know if you have specific information on that.

I would just like if there's a discrepancy where, like, we're only 12% of people, and now we're gonna 100% pay everyone, I would understand that. But if

I'm wondering if it's a total loss. I can imagine most of them are claiming the total Max. So if that's already happening, doesn't that help reduce the burdensome in terms of administrative?

I would just say on the additional living expense piece, you know, we we met with a few of our companies right after the LA fires, and they were helping place some of their customers in Airbnbs, hotels, apartments, you name it.

And they were very concerned that we were seeing price increases in that market of, you know, a 100% more than pre fire, 200 I mean, you've I'm sure seen

The price gouging that exists.

Yeah. The price gouging. And there was a lot of concern from some of my member companies that, you know, the policy limits might traditionally cover, you know, maybe eighteen months of rent,

which again, any normal loss situation where maybe you're the only house on the block, you know, that's that's sufficient. In a total loss situation like we're seeing and when you have price gouging like we saw, they were concerned that they were gonna be they would have

policyholders running out of ALE, you know, maybe in nine months. And so, I think the part of the proposal that talks I think we could get behind giving people the option to purchase additional ALE coverage.

But I think what we have a concern with is We're gonna mandating it wildfire risk areas and never never find themselves part of a extreme disaster like this where they're going to need that much ALE.

It sounds like there's still conversations on that specific provision. Great. Alright. The fifteen day grace period under still ALE, maybe just for my education, that provision exists because is there a current time limit that the clock starts ticking once a disaster occurs as to why we need a fifteen day grace period?

So while most companies will give you informally a grace period, they say, okay, we've repaired your home, your home is rebuilt. So in so many days or so many weeks, we're going to terminate to give you time to get movers, stuff out of storage, etcetera, etcetera.

Hi. Tony Cignarale, deputy commissioner of consumer services, Department of Insurance. To answer the question, currently, there's no time limit as to when an insurance company terminates your additional living expenses.

There are a few companies that say, we've remediated your home, we've repaired your home today, we're terminating your additional living expense today. So what we've been asked by the survivor groups in this fire and in past fires is can't there be some kind of a grace period.

So once the home is ready to move in, the homeowner has the ability to hire movers, get stuff out of storage and make arrangements rather than being immediately cut off.

Thoughts on that one?

Yeah. Let's see your thoughts. I would say our quibble with that is the term habit habitable habitable. I'm not sure the correct pronunciation. But that is the subject of a lot of discussion right now. I mean, Amy, you're part of the smoke claims task force.

There's a lot of discussion right now in California about when a home is deemed, you know, clean or habitable habitable Yeah. To return. And so I think our concern is about putting that that exact term.

I don't think it's necessarily a a concern with the fifteen day grace period. It's a concern with what may still be an uncertain ongoing situation between a policy holder and an insurer that could introduce a wrinkle. Okay.

The this one that says, when an adjuster gives word, you know, versus in paper, That seems like a good provision, you know, I want my what's promised to me on paper versus in on word. Quarums with that one?

We're certainly digging deep into the elements of the bill. And, certainly, some of these are not as we've gone through and tiered, what are the primary things versus not.

Not a primary thing..

But I will say well, no. I mean, I will say, generally, with regard to that issue, right, the claims adjuster's issue, I think what we've been trying to say is we recognize that certainly there are a lot of concerns and issues out there,

and we're happy to work with the author and the commissioner on how can we have a better customer service experience here, tighten some of these things up where appropriate, you know, looking at the timelines, looking at what the communication process is.

I think that's an important part of this discussion, and we certainly don't object to having reasonable conversations about that.

Great. Under the building code provisions, I think I heard this in LA where building codes were changed and because of that, they had to the cost increased because now you can't do this or buy a coast.

It's not the fault of the insurer that a city comes in and changes the building code. I do think it's it should be upon the insurer to cover that. How yeah.

So, yeah, a couple of things on that. So, I mean, right now, there is a certain amount of minimum building code upgrade that's in the policy.

What is it? 10 per

10% right now. That's the minimum. You can right now today buy more. You have the option to add more if you want. This bill wants to propose to boost that up to 20%.

Again, I think it's to the commissioner's point, having a transparent conversation that that's going to cost some more. And then the bill gets into other what we sort of started to call stacking provisions where it says,

well, you may you can take that building code upgrade and buy a house in another location, where maybe you don't need the building code upgrade, but you can add that to your price you pay and consider it part of your total coverage. Right?

And so this is where you you start there's multiple pieces to even each you provision in here, each proposal, and then those things start to add up to more and more, again, more premium hit, more cost.

But the insured would pay the higher premium to cover those costs. Right?

Well, they there's one piece, which is pay a higher premium if you want a 20% building code upgrade. And then there's a second thing which says, well, I'm not even gonna rebuild at my current location. I'm gonna go to another location.

And now and it also and then you have to apply it there where you may or may or not need it. You may not incur that cost.

Like a big part of insurance is covering people for costs they actually incur. And this gets away really philosophically from that core concept now to say, well, really, you know, you're just buying benefits and you can stack them and use them in multiple ways. And that has All

of us have anxiety, so we wanna make sure we go cover things. I mean, like, because that's hard. That's that's not real life. Right? Some people do cover things that they don't anticipate happening, but I that one, I that's a little hard to take at face value.

But I'm wondering what we got to 20%. Is that because we saw an average of that's what was the increase of building codes increases?

Well, yeah. What we're seeing is even with the 10 and even recently in these fires from last year, we are seeing people are going over, I mean their building code upgrade expense is higher than the 10% they are being allowed under the policy. So they are still paying out of pocket.

And so the goal of that particular provision is to trigger after declared disaster to from 10% to 20%, thereby giving a greater ability to be less ability of having under insured for the building code upgrades you're required to do when you rebuild.

And what I did get lost there.

Senator, if you're just a follow-up, I think what we're saying is a new delta between what is gonna be demanded of you or required of you to recapture what you've lost or build a portion of what you lost when you're in a declared disaster scenario.

Than you are in a traditional circumstance. Yeah. So there needs to be an additional ability to be covered to that extent because of that particular circumstance. Okay.

If I might add

Really quick. Sorry.

Yes. I just want you to understand because the other element of this is it says it can happen in another location and it could be years after the fact. So when an insurer is trying to price that building code upgrade,

it is now saying, and that building code upgrade could not exist today. It's something that's going to happen three, four, five years down the line in a different location. So how do you as an insurer know how to price that? So that's one of the concerns.

Okay. I

I'm sorry. That bill doesn't do.

I will leave back and forth.

The bill doesn't do what he just said. So we can clarify that at some point.

Okay. Opposition. That? To the opposition, there's a lot of provisions asking for shorter timelines payout, even the author talked brought briefly brought brought this up. In real life, how can you accomplish this and pay out within the days that are being asked for in the bill?

Under the emergency only. Yes.

So imagine, if you will, that you work in an insurance company. There's a massive disaster. You don't have the amount of claims adjusters in the state that, you know, you're that you need in a situation like this.

You don't you just don't keep those amount of people, you know, stationed here in California. So you fly people in from around the country.

So I think insurers try really hard to settle things as quickly as possible. We set up what are called insurance villages. I'm usually in partnership with the Department of Insurance in a given state. And it's it's exactly what it sounds like. It's a Home Depot parking lot.

You have a bunch of insurance tents essentially, and you go up to your insurance company's tent and say, you know, this is here's my information, etcetera. And you're getting checks right then and there. That is how it that's how it happens post disaster.

Now, it's obviously a much lengthier process once you start to get into the rebuild and, you know, so I wanna be responsive.

I'm just, you know, what insurers do and in order to meet these timelines, they'd have to bring in more more teams and they would.

They'd have to bring in more teams to be able to meet that. Do you think that's an accurate

Capture?

It is.

It is during during the actual, like, the immediate post disaster. The problems occur after the disaster when pea when those those, adjusters leave the state.

They go back and then they send their file or another adjuster gets involved. And then the the claimant has to start all over. The process starts all over for them.

And so what they're thinking is, wait, what happened to the adjuster that I was just working with, you know, for a month, for three weeks? They have to start the process all over. And that is the most frustrating, I can tell you.

That's one provision. It's like within five days, have they get an update? Correct.

They get an update. And they're like, wait. Do you have a file? No. The other adjuster didn't give me any documentation.

And Amy is the expert at this because this is one of the number one issues that we hear and it's it's heartbreaking.

Well, I just wanna add that what we have been told that at this point where we're about fourteen months after the the the fires, fifteen months, that most of the insurers really hardly have any adjusters on the ground anymore at all.

I think I've been told that Allstate has like one or two. So that's, you know, this is getting at the frustration that people have.

Okay. Two last questions I have. There's section on the increased penalties for claim violations. Are those claim violations on a consumer that submits in in ill intent claim or

There are claims violations that that the insurance company violates during the handling of the claim.

Okay. Got it. Does that go into a fund?

Currently, it would be the same as under current law, the commissioner currently has authority Okay. To penalize insurance company and it goes into the general fund.

How often do claim violations occur?

They occur on a regular basis in the thousands per year in total and then the insurance commissioner takes action on a number of them as they reach certain thresholds and penalizes insurance companies.

Okay.

I think it's also important to note that the proposed language deals with where we place liability, what circumstances will bring liability, and then enhancing the authority of the commissioner under existing statute to bring additional pen,

including order and restitution on a greater scale. This gets to enforceability and frankly, disincentive.

Okay. K. My last question is under the personal property one, and I had a little trouble understanding understanding this. But, commissioner, maybe like my second year here, you briefed senators and stuff and I remember you showed us this graph.

How dire the situation was for for policy companies and we need to help them out.? They're they need to be made whole.

And and this personal property provision is asking to require payment of full 100% policy limits for personal property. Is that because they have coverage for that? Or how would the how would insurance pay a 100% or

Yeah. When you have your let's say you have let's talk big numbers. You have the million dollar policy. Let's say, a insurance company will generally give you, let's say, 50% of that as your personal property. So you may have $500,000

Because I paid that's what I paid.

Because I paid a premium for $500,000 or whatever the number, could be $100,000 whatever that number is. And so what this bill does is after a total loss, after declared disaster.

It requires the insurance company, if you have a total loss and the home was furnished, the insurance company to pay that full amount.

Even though I pay only for a coverage of 50%?

So let's say it's $500,000 So you have your limit for personal property is $500,000 in this example, when you have a total loss, this bill requires you to get the $500,000 that you paid it for.

No. You no. The 50,000,000 let's call it a million dollars is your home limit, an insurance company, but may give you 50% of that for your personal property.

Because they're only giving like $250,000 is what you're saying, have it personal.

Currently, they're only getting 60% of the 500,000 under print law.

Or they have to do this itemized inventory that Senator Becker's friend complained about that you probably have heard a lot about

Okay.

Of this, you know, contents of the medicine cabinet, ridiculous, just to get what arguably you paid for.

Yeah. Now, if all the I forgot the number that is how many homes were destroyed just in the LA fires. So if everyone gets a 100%, is there the funding for all of that?

You wanna I'll start

talk over your hair,

I wanna

but I

feel like you're

in a class. It's

Yeah. I mean, again and I'm gonna Great question. Talk with Mr. Cignarale later about what their bill says about the building code thing. But the issue here, again, is it they're not paying for the full 100% that's in there. Insurers are are targeting a range.

You might get a 50% of, like he's describing, how your limit is calculated, but it's not an assumption that you're always gonna get your limit on every claim.

And so, generally, most people actually don't have anywhere near the amount of personal property that their personal property covers limit covers. So you get it as a it's like a, a calculation or a percentage based off your total dwelling coverage number.

So it's not necessarily a direct correlation to the amount of personal property you have. And that's what's baked into the numbers, is an assumption that you're around this average amount.

It does not your your premium does not assume that you're getting a 100% payout on your personal property coverage. So if everyone starts getting that, then that again is a very different thing.

That becomes almost like a different like a what we call a parametric product. It's not even now an an incurred loss. So

Okay. If I may, I would also add, I mean, this is a this is a policy limit that you're supposed to be paid for losses that you actually incur. Right?

So if you have a million dollar policy to utilize Tony's example, coverage a, you have a million dollars in dwelling coverage, what's called coverage c, which is your contents. When you sign up with your company, they estimate.

They go, okay, you have a million dollar home. We're going to assume that you have somewhere in the neighborhood of 500,000, $600,000 in in personal belongings, your couches, your clothing, etcetera.

But we don't know. We're not forcing you to do an inventory when you sign up, you know, but we're gonna that's the upper level.

But we're gonna price this based on all of the act I'm not an actuary, but all of the actuarial losses for years past, how much what percentage are people claiming for personal contents following disaster, and we're gonna we're gonna price that accordingly.

Under this bill, it would require that whether or not you've lost $500,000 worth of personal belongings inside your home, you get a check for $500,000 and you don't have to provide an inventory, anything.

And so the fact is if you have $200,000 worth of belongings, under current law, you get 60% of your contents coverage. So in that example, you get $300,000 But you can still do an inventory for the remaining amount if you have really expensive couches or something.

And so the concern here is that you would require insurers to either pay out for losses that you may or may not incur, or they're gonna they may change the way that they underwrite this. Right?

It may be now that when you apply for insurance, they say, okay, can you where are you shopping for your furniture? Where etcetera? And then, you know, to Senator Richardson's point, it would then be something that you'd need to update yearly with your insurer. Right? Oh, okay.

I just gotta you know, I replaced my IKEA couch with a restoration hardware couch. And so I think there's some concern about the not only the cost, but also how this would impact policy holders.

I appreciate the indulgence from the Vice Chair on on this. I'm hoping as more bills come, I'll be more knowledgeable in the space. But thank you for answering my question.

The indulgence was worth it on my behalf because I think you asked a lot of very good questions and some questions that I had also. But additionally, commissioner you mentioned the issue of optional coverage.

But you didn't say what when you said it, it sounded to me like every enhancement here was optional that the customer would ask for and then the policy would be priced accordingly as the conversation went on. I don't think that's what you meant.

So what in the bill, what coverage is optional for the insured to select and therefore pay an appropriately higher premium?

Yeah, there are several components obviously the 50% of extended replacement costs with premium attached to it that would be optional. That's an offer to mandate to offer that coverage.

There the only two remaining after guaranteed replacement costs was removed from the bill that would be automatic triggers would be the 50 the second 50% extended replacement cost that triggers after declared disaster for total losses in those unique situations.

And the trigger of additional living expense from what you have for your limits, which are based on a non disaster to a 100% of that for to handle a disaster. What was that last point again with your The additional the 100% the 100% increase of additional living expenses, that piece.

And actually a third piece would be the from the 10% building code upgrade coverage for a declared disaster, it went to 20%. Those are the three that would be automatic triggers.

The rest that are available for making offers would be again offers and the consumer will make a choice.

And with regard to the optional 50% contents coverage, That's what was being discussed previously that the insurance company could offer to the insured the ability to have 50% of the building insurance.

50% of that covered for contents and they would pay an additional amount for that amount of coverage. Is that what you're saying or am I misunderstanding?

No. Not Then explain it better. I didn't really quite get the the scenario.

I think you got it.

Do you think you got it?

If I can help. I think so the so the contents piece is we're just looking to relieve people of that burden of having to itemize every single thing because it reopens the trauma. Right?

So that piece doesn't mandate an increase in the coverage. It just mandates that the the benefits be provided more automatically. Right? And is is that is that?

Yeah. Okay. I get that. But Okay. I was talking about offering of coverage that the bill allows the insurance company to offer at the customer's choice and pay a higher premium for.

Yeah. What's that? Yeah. What are those components?

Yeah. It's the 50% extended replacement cost offer.

50% what?

Extended replacement cost offer.

It's like a buffer.

So if you have a

Of the total policy?

Yeah. That most about 40% of insurance companies already offer at least 50% of extended replacement cost. So if you have a million dollar policy using big numbers, you're allowed to purchase if you wanna pay the premium.

Okay.

50% or higher.

Okay.

Of additional coverage over that.

That's dwelling and contents?

Well, no. It's mostly dwelling. Dwelling. There are a few companies that do offer it across the board. For all the different coverage.

And that's offered optional at an additional coverage.

Correct.

And with regard to the contents that we talked about as was explained. And by the way as I've always understood that these are formulaic offerings.

Yes.

Your building is worth a million dollars and they look at past experience and typical contents claims of a million dollar building is going to be maybe $300,000 So they offer you a maximum of 500,000 sort of just in case.

But it's assumed that most of the most of the the claims are going to be closer to the 300,000. So if you require the 500,000.0 on every one, you just increase their cost by almost 50%.

I think it is fair to assume that many insurers will start to reduce the amount of contents coverage that they offer if this were to go through as drafted. I think that's a to be honest, I think that's I well, you just said

What would happen again?

You just said people don't need all that, right? You said you guys said most people have nowhere near their contents limits and I I don't know that to be true. I think this is a data point that could easily be

be I can tell you it probably is true. I've had a house fire. And my contents coverage was nowhere. Many contents that I had and paid for and was satisfied with was nowhere near the maximum. So

Okay. Okay.

Well, I just I mean, was it what yours was not a total loss. Correct? This would this wouldn't even

Almost. But no, not a total loss.

This is really just contemplating everything you owned is gone. Right. And of course, survivors think logically, well, if everything's gone and I paid x for y dollars, why aren't y dollars being you get it. I know.

Yeah. I do. I'm telling you, I didn't expect that.

Right.

I knew what the deal was. Right. And I'm just an average insurance consumer. So I think rather than insurance customers buying less coverage, the insurance companies are gonna be more proactive of that and they're going to adjust their premiums as a result.

So and that's a part of my concern about this is you mentioned commissioner that this is about recovery not about rates that the sustainable insurance strategy is a long term strategy and this is sort of covers just after a disaster.

And in my opinion I don't see how you can separate those two because I thought your sustainable insurance strategy was a good start relative to the crisis we were experiencing. And that crisis was driven by disasters like this.

So I thought that that was really part of the overall strategy is covering things like this. Now in the meantime we've seen various proposals to address in particular the Los Angeles disaster.

And I would point out that most of the proposals that we've had for consumer friendly allowances were after para, the Southern California fires.

I didn't see a lot of that movement with regard to the Santa Rosa disaster nor the Paradise disaster. So I've always thought that that was interesting at the least.

So that's why I thought that sustainable insurance strategy was a comprehensive approach that certainly needed some modifications, but not individual modifications for specific instances that was intended to be sort of all encompassing. So I don't see how you can separate it.

All I would say, Vice Chair, is look, the you're absolutely right. The sustainable insurance strategy is really was trying to tackle not just the climate realities, but long years of neglect.

Whether people wanna believe it or not, and major reforms and modernizations that should have happened in the department. And that was a massive piece of that as well.

This is really informed by, like I said, not just one set of fires in LA, but all the different 120, you know, catastrophic fires and really brings into play all the issues. Are some of these issues that we're still trying to formulate and work with industry?

Absolutely. And and we're trying to really look at, you know, some of these particular issues.

But a lot of these folks and as Senator Menjivar brought to my attention, when we were specifically at one of the fires, I believe it was in Sonora, California, where the gentleman and these are kind of, anecdotal, said, I know where I live.

I just need to know how much I need to pay so that I can better budget for my family and I. What I don't want is the fear of having to lose my insurance every year. And so people understand where they live.

They just need that certainty and they need the protection especially after these cataclysmic fires.

And that's what we're trying to to narrow it. And so through the process, I think you're gonna see a very different product as we're trying to get to assess all these different issues.

But that's what we're trying to do. And we know that some of these components are gonna ultimately affect the rates and this is why we're at least making sure that they're being offered and given that opportunity if they wanna purchase the additional coverage.

In some of the cases. I get that. With regard to the contents by the way, Senator Allen had a bill of that last year and it was negotiated. And so now we come back and we ask for what he asked for in the first place. You know, I know we do that sometimes.

You're not Senator Allen. That was Senator Allen. But it's just the process seems a bit unfair that way that we have a proposal made in 2025. And parties get together in good faith negotiate and settle on a different number that everybody can live with.

And then in 2026 we come back with the same thing that was initially offered that, that gives me significant pause.

And, related to that, these provisions are going to increase costs for insurance companies. I don't know I have concerns about what that means with regard to availability.

Excuse me, affordability but also availability because if they're gonna have additional costs they're gonna have cause to ask for rate increases. So how quickly are you going to be able to process the rate increases that they're probably going to request in order for the availability to stay?

And where do you think how do you think the convener is going to facilitate or not that process?

Well, Mr. Vice Chair, I as I said earlier, you know, Cal we've thank you to the leadership of the legislature. We have hired the staff.

We are, again, recommitting ourselves to make sure we're true to the letter of Prop 103 and getting us back to what is mandated by Prop 103 through the hundred and twenty days.

And if you look at all the different rates that we've approved under the SIS and and quite frankly some other ones have done in that record time. Now that's a game changer for us because we want to make sure that the industry understands that we're meeting that.

Right? But also now with the use of one, the data reconciliation tools that we're able to use now. We're now no longer apples and oranges, That that's a big big win for us. But also that we are now committing to this, and I'm gonna do a reg.

So when I'm gone, I wanna make sure that the next person is also beholding to those rules. Again, demonstrating that we can't go back to that.

We can't go back to that old California where it takes years, but that and we're allowing them to use those new technologies. They cannot say that that's not a big modernization, but that the that the rates also have to reflect the risk.

And they need to be true when they come to the department to make sure that those rates reflect what they need and have that honest conversation with our department. That is a whole separate entity that I'm not of involved with.

That is our legal actuaries folks that do that, and then they bring that to me as the last, you know, sayer that and that's part of that.

But we have an entire process that will look at it. And to them, it's just math. The there's no politics in that process. And so though though that's the expert process we have in California. And so I leave that to them.

And then if the rate reflects if they're not discriminatory, if they're actually sound, and if they reflect the risk, then, you know, the rate will be appropriate. And so that has been the long standing process under Prop 103.

And with the intervener reform that you're request that you're asking, you know, we're finally gonna hold them to transparency into account. Which is the new regulation that I'm currently working on.

To finally make sure that they're not that that there's some guardrails to the work that they're doing. Again, something else that, you know, I'm my goal is to hold everybody accountable and making sure the entire process is transparent for everyone, including the department.

This is why I'm doing the regulation to make sure that we hold it ourselves to the 120 days with the additional 30 days, which is prop what prop 103 says. So I'm holding everybody accountable in the process.

Well, that is gonna be important. Now you've mentioned prop one zero three several times. That commissioner is fundamentally the problem we're dealing with to begin with. But I digress. Yeah.

I'm not gonna I'm not seeing it. I in any attempt to reform Prop 103 is probably doomed its failure because of the resources that unnamed convener happens to have. But that's kind of a different unrelated issue. I'm not gonna support this bill today.

I can tell it's going to pass and you're gonna continue to work on it. But as it is it's not acceptable to me and I just wanna make that particular point clear and Senator Rubio has an additional question or comment.

Well more comment and I heard you state right now about the 60% negotiation that we worked so hard on last year and and I agree with you.

And that's one of the items that I discussed with the author about trying to see if we can focus on that because we were working really hard last year to to come to an agreement. And so I don't disagree with you that we work so hard every year, and and then here we are.

The bill just passed in January and we don't have a chance to let it work its way up, you know, when we have another regulation. And so he did, express, his willingness to to work on it.

I don't wanna sue for the author, but can you, state for yourself? That's one of the items that he's gonna be working on.

Mr. Vice Chairman, Members, and Senator, thank you for engaging me in the conversation about the bill.

And perhaps this I don't think there are any other comments, so perhaps this can be your close.

Thank you, Mr. Vice Chair. Appreciate that time efficiency. Even though I'm stretching up here. It's good. To the senator's question yes.

I am committed to continuing to work with a broad coalition with the industry, with consumer protection apps. Everyone as we discussed to continue to tackle these issues in a way that it brings benefit in our operational and avoid unintended consequences.

Yeah. Thank you.

Great close. And I don't think we have a motion.

And of course, I would respectfully request an Aye vote.

I'll take the one that was more vocal. Senator Richardson moves. Please call the roll.

Motion is due pass as amended to Judiciary. [Roll Call]