Proposed California Homeowners Regs Bad Public Policy, Associations Say

Homeowners’ insurance regulations proposed by the Department of Insurance would result in higher premiums for many Californians, force insurers to charge unfair homeowner rates and cause subsidies among policyholders, according to the Personal Insurance Federation of California (PIFC), the American Insurance Association (AIA) and the Association of California Insurance Companies.

“The Commissioner tried similar schemes twice in the past. Both times the courts struck him down. If he pursues these equally unlawful regulations, he’s facing a third strike,” stated Gene Livingston of Greenberg Traurig LLP, testifying on behalf of PIFC and AIA. “These regulations violate Proposition 103 and numerous other insurance laws. No part of the regulations would be upheld by a court.”

According to ACIC, the proposed regulations for homeowners insurance resemble Commissioner Garamendi’s efforts on auto insurance. In both cases, the Commissioner is proposing systems that would result in arbitrary rates, mandating that rates be based upon the Commissioner’s preference of whom should pay more or less, instead of fairly rating on what actual claims experience predicts will be a future claimant, the associations said.

“There are two options under this proposal and they are both ill-advised. Option one would require lower risk customers to subsidize the artificially suppressed rates required under this proposal – resulting in a system of arbitrary rates and unfair discrimination. Option two would be for insurers to avoid higher risk customers for which adequate rates would be banned – creating a ‘Use It and Lose It’ system for claimants and reducing the availability of insurance,” stated Rex Frazier, PIFC’s vice president and general counsel. “This proposal amounts to the State of California picking winners and losers without even bothering to understand the effects upon the public.”

“The Department of Insurance reviews these filings and approves rates based on past claims. If insurers are prohibited from basing their rates on costs, homeowners with good claims history will be deprived of the lower premiums they deserve,” noted Janine Gibford, assistant vice president, AIA. “Most homeowners’ insurance company rate filings include the consideration of past claims as one of the factors that determine rates.”

ACIC President Sam Sorich called the proposed regulations “unfair and bad public policy” in prepared remarks scheduled to be delivered today before a Department of Insurance public hearing.

“Insurers have a legal obligation to charge rates that reflect the cost of coverage provided. The proposed regulations would prevent insurers from fulfilling their legal obligation to their customers. The proposal is just bad public policy,” Sorich said. “Homeowners who have good claims histories would be forced to pay more for insurance coverage. Actuarial evidence demonstrates that homeowners with good claims histories have lower insurance costs. If insurers are prohibited from basing our rates on costs, homeowners with good claims history will be deprived of the lower premiums they deserve,” said Sorich.

He noted that the proposed regulations also are contrary to existing law.

“The Insurance Code specifies that the Department of Insurance must review proposed homeowners insurance rates to determine if they are excessive, inadequate or unfairly discriminatory. If the rates satisfy these standards, the department must approve the rates.State law authorizes the insurance commissioner to decide what rating factors may be used for auto insurance. The commissioner has no such authority over the rating factors for homeowners insurance,” said Sorich.