As a string of last-minute deals surfaced this week before Thursday鈥檚 end of the legislative session, one highly anticipated proposal was not among them 鈥� a plan to keep insurance companies in California even as the financial risk from wildfires grows.
A key deadline passed Monday night without a bill, dooming the effort for the year, despite involvement from legislative leaders, Insurance Commissioner Ricardo Lara and Gov. Gavin Newsom. Negotiators struggled to find a balance between that has been pushed to the brink and maintaining protections for homeowners who could face much higher premiums to stabilize the industry, a politically fraught prospect.
The Legislature won鈥檛 return to Sacramento until January, leaving the issue unresolved for , though there will be hearings and potentially regulatory changes in the months ahead that could reframe the conversation.
鈥淭hat鈥檚 the progress we鈥檝e made here,鈥� said Michael Soller, a spokesperson for Lara鈥檚 Department of Insurance. Fixing the home insurance market is now a priority across state government, he said, and there is urgency to get something done.
During an interview Tuesday night with Politico California, Newsom said a working group within his administration has focused on this 鈥渨aving red flag issue鈥� for months, in addition to the discussions with the Legislature.
鈥淪o we鈥檝e gamed out some different strategies,鈥� he said, declining to specify whether that might include calling a special legislative session or issuing an executive order this fall. 鈥淲e can do a lot of things. And I鈥檓 very mindful. We can do all of that.鈥�
A spokesperson for the governor said he would have more to announce as soon as next week.
Wildfires fueled a looming crisis in California鈥檚 insurance market for years. After disastrous fire seasons in 2017 and 2018 wiped out decades of profit, insurance companies began by refusing to renew their policies.
But the situation reached a blaring emergency in May, when California鈥檚 largest home insurer, State Farm, announced that it would . Another major provider, Allstate, soon acknowledged that it had , while Farmers Insurance .
The industry says it has become too expensive to operate in California, blaming the high cost of rebuilding, growing risk from natural disasters and increasing expenses from buying 鈥渞einsurance,鈥� or insurance for their losses, which state law prohibits them from passing onto customers.
The rippling consequences make it more difficult to build new homes, because of a lack of insurance options, as California tries to climb out of a severe housing shortage. It also imperils the state鈥檚 FAIR Plan, which offers limited insurance to homeowners who cannot secure a plan through a private insurer. A levy on insurance companies can provide a backstop when losses exceed funds from customers鈥� premiums, so the FAIR Plan faces insolvency as insurers leave the market and more homeowners are pushed into the program.
Negotiations for a legislative solution considered whether to allow companies to use forward-looking catastrophe models, rather than past losses, to set insurance rates, as they are already allowed to do for earthquakes; whether to let them factor reinsurance into their prices; how to set assessments for the FAIR Plan; how to speed up regulatory review of rate increase requests; and whether to require insurers to operate in communities with the biggest threat of wildfires.
鈥淲e thought we had a sensible, viable solution that we could continue to massage,鈥� said Sen. , a West Covina Democrat who leads the Senate Insurance Committee. 鈥淲e were ready to act this year.鈥�
With just a few weeks to maneuver at the jam-packed end of session, however, lawmakers and advocates say it was too late to reach an agreement that could earn widespread support.
Denni Ritter, a vice president of government relations for the American Property Casualty Insurance Association, one of several insurance industry organizations, said there was broad consensus around incorporating catastrophe modeling and reinsurance costs into rates, but a framework for FAIR Plan assessments was still unresolved. Many legislators also wanted to ensure the bill would offer as much benefit to consumers as it did to the industry, she added.
鈥淓verybody was still trying to wrap their heads around hard solutions,鈥� Ritter said. 鈥淲e just ran out of time.鈥�
An unexpected bomb dropped last Thursday when Sen. , a Napa Democrat who was involved in the deliberations because his district has been slammed by wildfire damage, days before the deadline.
Dodd told CalMatters this week that a secret recording of a building industry lobbyist describing efforts to jam a bill through the Legislature, , scared many of his colleagues, who worried that the plan would be a giveaway to insurance companies.
鈥淓ven without that, this is a very complicated issue,鈥� Dodd said. 鈥淚t was not helpful.鈥�
Jamie Court, the president of Consumer Watchdog who recorded the lobbyist on a flight, said consumer groups like his did not have a seat at the table, which delegitimized the negotiations for some lawmakers. He encouraged the Legislature to consider homeowner-oriented solutions 鈥� such as giving people money to harden their homes against wildfires and then guaranteeing their access to insurance if they do 鈥� in a more transparent process next year.
鈥淚 think the secrecy was the main thing. No one saw it, even people in the building. And that鈥檚 no way to make policy,鈥� Court said. 鈥淵ou can鈥檛 jam it down people鈥檚 throats.鈥�
Assembly counterparts tried to keep the negotiations alive. The day after Dodd鈥檚 declaration, Assemblymembers , a Whittier Democrat who leads the Assembly Insurance Committee, and , a Healdsburg Democrat whose district has been battered by wildfires, signaling that discussions would continue into the final weekend before the end of session.
But no proposal ultimately surfaced by Monday night. Calderon and Wood both declined multiple interview requests.
鈥淥ur Caucus has been steadfast in putting consumers first, and I鈥檓 grateful for their dedication,鈥� Assembly Speaker Robert Rivas, a Hollister Democrat, said in a statement Tuesday announcing a series of public hearings this fall on the insurance system. 鈥淥ur mission has always been to ensure homeowners and businesses across California can access and retain comprehensive insurance coverage.鈥�
The Senate has no similar plans, though Senate President Pro Tem Toni Atkins, a San Diego Democrat, said in a statement, 鈥淲e know we have to act to address insurance availability before we experience the market failure we鈥檝e seen in Florida and elsewhere.鈥�
The focus now shifts to Lara, who as insurance commissioner has broad regulatory authority to reshape California鈥檚 home insurance market without the Legislature.
During , critics accused Lara of not doing enough to protect homeowners in wildfire areas. His office began enforcing a new regulation in October requiring that adopt wildfire safety measures.
Ritter of the American Property Casualty Insurance Association said a solution could largely be handled through regulations. Even if Lara acts quickly, however, it will take months more for companies to recalculate rates and get them approved by the insurance department, a process that the industry complains takes far too long.
鈥淭his is not an overnight fix,鈥� Ritter said. 鈥淭hat was part of the heartache with the negotiations 鈥� there are no overnight fixes.鈥�
Soller, the spokesperson for Lara, said a workshop at the end of September to explore catastrophe modeling 鈥� how it would affect the availability of insurance and future rates, how models would take into consideration safety investments 鈥� could inform a rulemaking process. The department is also working to modernize the FAIR Plan, he said, and to streamline reviews of rate filings.
鈥淭he causes are far more complex than often gets acknowledged,鈥� Soller said. 鈥淭he solutions are far more complex.鈥�
The Legislature may still want to have its say as well. Dodd said lawmakers will keep working over the recess and could introduce a proposal next year, based on what Lara does this fall, that is ready to move right away.
鈥淥nce the insurance commissioner does what he鈥檚 going to do, that frames the whole issue and allows all sides to opine,鈥� Dodd said.
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