Post LA wildfires 'an opportune moment' for industry and government collaboration, says Lara

By Chris Munro

March 12 - (The Insurer) - January's Los Angeles wildfires have provided “an opportune moment” for the insurance industry and regulators to step up to efforts to build resilience, California Insurance Commissioner Ricardo Lara told the Bermuda Risk Summit on Tuesday.

Lara told attendees that insurance commissioners across the U.S. are collaborating to reduce the risk faced by the nation’s communities, adding that the industry needs to be "bold and creative in navigating this pivotal moment in our history".

He said building resilience against events such as wildfires was the most effective way of making affordable insurance more accessible.

“Mitigation is key. Hardening homes reduces losses. We know it enhances affordability and availability. It lowers reinsurance costs, it builds confidence among insurers, and it contributes to a sustainability in our markets,” he declared.

“We actually have choices, and we have science-driven strategies that can enhance safety. The NAIC climate resiliency strategy really marks the first coordinated effort by us insurance regulators to implement these resiliency actions,” he said.

Lara said that California is drawing on Florida's public hurricane catastrophe model as it begins work on its public wildfire catastrophe model.

“We've learned from Alabama and North Carolina and Louisiana and other states about effectively designing and implementing successful resiliency grant programs,” he added.

Lara also discussed the reforms that his department has already implemented to improve California’s insurance market.

These include the 2023 launch of its sustainable insurance strategy, which he described as “a pivotal agreement with the insurance industry aimed at increasing the number of policies issued in areas affected by wildfires”.

“Consumers across the state have voiced the need for more dependable insurance market that enables them to exit the FAIR Plan, which is our insurer of last resort, and stay within the admitted market.

“Our strategy seeks to address these two main concerns.”

Lara said one of the main discussion points with the insurance industry was the California Department of Insurance creating a more streamlined and efficient rate filing process.

“You hear this over and over again of how complex our process is, and we understood that, and we committed to getting those rates done as quickly as possible under the new reforms,” he said.

Insurers have previously cited the slow response times in getting rates approved for their decisions to scale back in California.

As previously reported, State Farm General Insurance Company has warned it may have no choice but to continue pulling back in California if its emergency rate request is not approved.

State Farm General, which is State Farm Mutual Automobile Insurance Company’s California business, made three rate applications last June and has again pushed for those to be signed off in the wake of an estimated $7.9 billion gross loss from the recent Los Angeles wildfires.

Lara said the CDI “moved with unprecedented speed and focus to achieve all of the actions outlined in our sustainable insurance strategy within a single year”.

“Any of you who work for government, or my fellow commissioners can tell you, it is virtually impossible to get one regulation done in one year, but we got multiple of that done.

“That includes a new cat model regulation which establishes a process for reviewing the integrity of these models. Multiple reforms to the FAIR Plan aimed at improving its financial stability and its operations to better serve consumers.

“A streamlined rate application process to increase efficiencies, and of course, our California net cost of reinsurance regulation, and an assessment of our wildfire-distressed areas based on wildfire risk and insurance availability.

“This initiative really mirrors efforts in only a few states like Florida and Texas,” he said.

Lara said a “critical” part of the sustainable insurance strategy involves reforming the FAIR Plan, which has taken a multibillion-dollar hit from the January wildfires.

The FAIR Plan expanded rapidly in recent years after both personal and commercial property owners were forced to secure coverage from the residual carrier owing to a lack of other options.

That growth, Lara said, “really poses a risk to a broader California insurance market”.

The FAIR Plan’s expansion “generates uncertainty and concerns among other insurers regarding the potential for a FAIR Plan assessment to their companies”, the insurance commissioner said.

Lara said the reforms have improved the FAIR Plan’s financial solvency through “clear delineation” of insurer and consumer responsibilities when an assessment occurs.

“We are now sharing in the responsibility – consumers 50% and the insurance companies 50%.

“A more modern FAIR Plan must really reflect the current risks and needs of our consumers, while ensuring its financial stability,” Lara said.

“Now that the public understands and consumers, more importantly, understand that they have skin in the game, I hope, and it's my goal, that it encourages local governments to prioritise wildfire safety in their planning and development initiatives, particularly in wildfire-distressed areas.”