The next CA Insurance Commissioner has a tough job ahead of them

from Levi SumagasaiCalMatters

This story was originally published by CalMatters. Sign up for their newsletters.

In November, Californians will vote for the “second-toughest job in the state after governor.”

That’s according to someone who has held the position twice: John Garamendi, who was the state’s first elected insurance commissioner in the 1990s and took the position again in the early 2000s. Garamendi, now a U.S. congressman, said the commissioner’s job is “complicated, hard, detailed work.”

“There is no other position in any office in the state of California other than governor that has such significant power and the need to use that power to regulate the industry,” Garamendi said.

Insurance Commissioner Ricardo Lara is nearing the end of his second four-year term. Over the past seven years, California has experienced the largest and most destructive wildfires in its history, prompting insurance companies to cancel homeowners’ policies or refuse to write new ones. With the insurance market out of whack, Lara last year introduced new regulations that include provisions that insurers have long sought. Availability in the state is starting to improve, although the commissioner said recently he expects recovery to take several years.

The next insurance commissioner will have to balance availability with affordability. Premiums are rising. Many survivors of last year’s wildfires in Los Angeles County are fighting to recover; they have sued insurance companies; and they have urged Lara to withdraw because they don’t think he has done enough to hold insurers accountable for delaying or denying their claims. Some insurers still cancel policies. Many homeowners continue to turn to the FAIR plan as a last resort, which has seen a 146% increase in policy numbers since 2022.

“Affordability is just one piece of a very complex puzzle,” said Amy Bach, executive director of United Policyholders, a nonprofit consumer advocacy group. She said the insurance business today is more complex in part because of new technology and market participants such as third-party administrators for insurers and nonadmitted carriers who, among other things, are not subject to rate review by the insurance department.

If all that doesn’t sound like enough responsibility, California’s insurance commissioner also regulates auto, health, pet, trucking and life insurance, as well as workers’ compensation.

Among the candidates who have thrown their hats in the ring are state Sen. Ben Allen and former state Sen. Steven Bradford, former San Francisco Board of Supervisors member Jane Kim and Patrick Wolf, a financial analyst with experience in the insurance industry.

New rules and consequences of fire

Lara recently told the state Assembly’s Insurance Committee that the new regulations he put in place last year are showing signs of working — that insurers are once again writing policies in California.

Those provisions include speeding up reviews and approvals of insurers’ requests for rate increases and allowing them to take into account reinsurance costs and catastrophe patterns when setting rates in exchange for writing a certain percentage of policies in high-risk wildfire areas. Insurers including Mercury, CSAA and USAA have asked for and received higher rates under the new rules, Lara told the committee.

He credits the rules with the improvements in availability the department has seen so far despite the deadly multi-billion dollar disasters that have been the fires in the Los Angeles area.

“The market stabilized at a time when it could have collapsed,” he told the commission last month, referring to the fires as “the event that changed everything.”

Lara told the committee he expects his so-called sustainable insurance strategy — and recovery from the fires — to take three to five years, and that California is already a year into that timeline.

Policyholders also complained of delays and denials of claims by their insurers, prompting the insurance department to explore market leader State Farmas well as FAIR Plan, on their claims processing. Lara has supported new legislation and policies to address some of the issues that fire survivors have had, including lack of smoke damage standards and underinsurance.

So the next commissioner will have to deal with the ongoing effects of the fires and either work with or change the rules introduced by Lara.

A “brutal” balancing act

This will require engagement with competing interests: insurance companies, legislators, consumers and consumer groups.

Early in his tenure, the San Diego Union-Tribune reported that Lara accepted donations from the insurance industry even though she had promised not to; he apologize and returned these donations. Since then, he has been accused of continuing to be comfortable with the industry and has been criticized for doing so abroad travel.

Former insurance commissioner Dave Jones, a critic of Lara, said the next insurance commissioner must have “integrity” and “serious purpose”. Both Jones and Garamendi told CalMatters that the commissioner must protect consumers while ensuring a viable insurance market that nearly everyone needs — whether they are current homeowners, renters, business or property owners, and those who need insurance to purchase property.

Lara has often defended himself by saying he needs to communicate with the insurance industry he regulates and criticized his predecessors as “insurance commissioners chair.” He was not available for an interview, according to department spokesman Gabriel Sanchez, who declined to respond to critics of the commissioner for this story.

Joel Laucher has worked for the underwriting department for more than three decades, focusing on underwriter behavior — including briefly under Lara. He said the incoming commissioner would have to be diplomatic but firm with the industry.

“Even if you had a nice conversation with them, that shouldn’t stop you from enforcing consumer protection laws, including imposing fines or taking them to hearings,” said Laucher, who is now a program specialist at United Policyholders.

Robert Herrell worked in the insurance department for several years. He is now the executive director of the Consumer Federation of California, another nonprofit consumer advocacy group.

His group and others have asked Lara to drop provisions that make it difficult for intervention — any members of the public who under California law can challenge insurers’ requests to raise premiums — to influence insurance department reviews. The commissioner said the new ruleswhich the industry maintains are intended to improve efficiency and expedite rate reviews; consumer groups say the rules are “designed to impede effective consumer participation.”

“It’s the exact opposite of the way you should be going,” Herrell said.

Bach of United Policyholders signed these joint comments submitted in November by consumer groups, unions and others. But she said some of Lara’s critics were too hard on him.

She said the commissioner should be the “bad guy” on rate hikes; hold insurers accountable while encouraging them to continue writing policies in the state; and communicate to consumers that the insurance department may be helpful but does not have the capacity to provide them with individual legal assistance.

“We’ve never seen a market like this,” Bach said. “The balancing act is so brutal.”

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.