My Plan to Fix
California’s Insurance Market
Insurance markets in California are in crisis. Many homeowners and businesses can’t get the coverage they need, while those who can often face skyrocketing prices and shrinking coverage. Insurance is supposed to provide peace of mind, not stress and confusion.
I have a plan to solve our state’s insurance crisis by holding insurance companies accountable, increasing choice and competition, and improving transparency.
This plan is a new way forward for California. We cannot afford to continue the same broken policies that got us into this crisis. California’s insurance markets can work the way they should, so long as we have the leadership we deserve.
As Insurance Commissioner, I will be totally focused on making California’s insurance markets work for you so that insurance is fair, affordable, and readily available to everyone in California.
Holding Insurance Companies Accountable
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Consumers deserve to know how well insurance companies fulfill their responsibilities to pay claims fairly, and they need to have this information before making the purchase decision. The Department of Insurance already collects data called the “justified claims ratio,” where it analyzes consumer complaints against insurance companies claims behavior and determines what ratio of those complaints are justified. I will have the Department create an easy to understand report card grading each insurance company using this data, and I will mandate that the report card be provided to consumers before making the purchase decision.
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By the end of 2025 the California Forestry Board will finalize a set of regulations called “Zone Zero” that are scientifically designed to reduce fire risk. Once these Zone Zero regulations are published, insurance companies must be required to offer discounts to customers who have faithfully followed the regulations that reduce fire risk at the house and neighborhood level.
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Modern wildfires are creating unprecedented levels of smoke damage that insurance companies are not sufficiently covering. The Department of Insurance has recently created a Smoke Claims & Remediation Task Force that is charged with developing statewide standards for smoke claims. I will mandate the findings of this Task Force be included in all home insurance policies sold in California, and hold insurance companies accountable for paying smoke damage claims.
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The typical homeowners’ insurance policy significantly underestimates the replacement cost of a property. As a result, many Californian homeowners are deeply underinsured, which means they don’t get paid enough to rebuild after a disaster. The root cause is that insurance companies all use the same software to estimate replacement cost, and the software estimates are biased to estimate too low. The Department of Insurance has the data required to fix this problem of homeowners being underinsured. I will mandate that: (1) consumers must receive an estimate at the point of purchase that quantifies how much the replacement cost is likely to be too low based on Department of Insurance data; (2) insurance companies must provide consumers the option to purchase sufficient Extended Replacement Cost coverage to close this gap.
Increasing Choice & Competition
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One of the key factors limiting choice and competition in California’s insurance market is how long it takes for insurance rate applications to be reviewed. The national average for a rate application review is 60 days, but in California it takes nearly 300 days. We can dramatically speed up the rate review process to be much closer to the national average by streamlining standard rate applications. This will make competitive rates available to consumers faster and make it easier for more companies to do business in California.
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California must take the scientifically backed action necessary to reduce wildfire severity. The state should be doing 500,000 acres/year of controlled burns to reduce the risk of catastrophic wildfires. Instead, we are only doing approximately 100,000 acres/year. I will use the role of the Insurance Commissioner office to explain the urgency of this issue and emphasize the need to take action. Reducing the severity of wildfires will reduce the cost of insurance and make it easier for insurance companies to do business here. It will also protect property and, most importantly, save lives.
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Telematics refers to installing a device in the automobile to directly track driving behavior. California is the only state in the US that does not allow using telematics to underwrite auto insurance. Allowing telematics has many potential benefits: (1) more efficient and ultimately lower pricing of insurance; (2) safer driver behavior; (3) providing objective data to challenge biased policing; (4) attracting more auto insurance companies into California – which would also increase home insurance competition, because auto insurance and home insurance are often sold together. To be clear, there are important privacy concerns with telematics, which I take very seriously. However, every other state in the US has developed regulations that meet the privacy needs of its residents, and I believe with proper study California can do so also.
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For many years, California’s regulations have not allowed insurance companies to use forward-looking models or to include the cost of reinsurance in underwriting homeowners’ insurance. (Reinsurance is when an insurance company buys insurance from other insurance companies in order to reduce risk, which is a standard practice in the industry.) The Department of Insurance is changing those regulations in what it calls the Sustainable Insurance Strategy. This is a critical reform. As Insurance Commissioner, I will ensure the Sustainable Insurance Strategy reform is carried forward and strengthened, to allow more insurance companies to enter the California market to increase availability of insurance.
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The California FAIR Plan is a jointly operated association of all licensed insurance companies in California, which is required to offer basic fire insurance to anyone that is otherwise unable to get coverage. It is supposed to be a “last resort” that is only very rarely used. Instead, because of the failure of California’s regular insurance markets, it is the fastest growing insurer in the state and it is quickly also becoming one of the largest. The FAIR Plan was never designed to provide adequate service to so many customers. It is imperative to heal the regular markets as quickly as possible. This will allow customers to go back to the normal insurance companies who can provide better service, and will align rates with the correct level of risk so that rates are fairer for everyone. In the meantime, the Department of Insurance must invest the resources the FAIR Plan needs and require insurance companies to fix their management and oversight of the FAIR Plan so that it provides adequate service for customers who lack alternatives.
Improving Transparency
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The Department of Insurance website is disorganized, hard to navigate, and opaque. California should have a Department of Insurance website that is well organized, easy to navigate, and transparent. I will have the Department of Insurance completely overhaul its website. We will study the best practices of other states and bring in the best technology and design talent so that California consumers have the online information and resources they deserve.
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I will implement an annual benchmarking report that compares California’s insurance rates to all the other Western states, accounting for the cost of living, so that consumers and businesses can see an objective benchmark of California’s market versus other, similarly wildfire-affected states. This will allow consumers and businesses to track when our insurance rates are outside the range of what is reasonable and fair. It will also allow the Department of Insurance to track when California’s insurance markets are deviating from other states, in order to analyze the reasons and potential implications.
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Research consistently shows that most customers do not have a clear understanding of what is covered under their insurance policies. AI is a technology that can analyze complicated text and translate it into plain language. At the moment, the technology may not be accurate enough to be relied upon, and there are complicated questions to answer about how it would work in practice. Now is the right time to create a dedicated task force to study how this technology could be put to use to help consumers, while also surfacing any potential risks or pitfalls. If we invest the time and effort to get this right, California could lead the way in using this new technology to create substantial consumer benefit by making insurance coverage much more transparent and understandable.
