When the topic of insurance comes up in politics, most people think about America’s healthcare system. However, California is facing another major insurance issue—housing. Not only are thousands of house owners who live in fire-prone areas losing their home insurance, but many of those who remain on their plans are facing higher rates.
In the last five years, California has experienced 10 of its 20 most destructive fires. In 2017 alone, the state had 71,499 wildfires. This has prompted insurance companies to dump their clientele that resides in vulnerable areas, including rural San Diego. These changes must get approval by the state’s Department of Insurance thanks to Proposition 103—a 1988 ballot measure. However, Prop 103 does have loopholes that insurance companies are exploiting—something that state regulators are struggling to combat.
For instance, the proposition states that the public can force the state’s elected insurance commissioner to hold a public hearing if insurers request a seven percent increase in rates. These hearings are extremely rare, even though in the past two years over two dozen home insurance companies have requested rate increases. The catch is that these companies have asked for increases of 6.9 percent. Some firms have even asked for these rate increases back to back, so they can get double-digit rates without any consumer push back.
Another tactic that insurers have used has been to push increases for a small percentage of their client base. Prop 103 has been interpreted to regulate a company’s average increases, not individual rates. Companies like Northern California AAA Auto Club have taken advantage of this by only increasing rates for 5,300 out of their 96,000 buyers.
“The agency has allowed that to go on, and it’s frustrating,” said Rosenfield, the author of Proposition 103.
Companies are also taking on initiatives to streamline approvals for their increased rates. In recent filings, CSAA said they could justify an 18.5 percent increase, but the company only asked for 6.9 percent. Some Insurance Department officials suggest that this is merely a scheme to keep regulators off their backs.
Ken Klein, a professor at California Western School of Law who studies the insurance industry, said insurance is a public necessity that is fairly heavily regulated in California, but there’s still a question about how regulated it should be. Not only are homeowners facing rising prices, but they are also not being informed of the increased rates.
The insurers only receive a notification if they sign up for updates. Rosenfield said the insurance commissioner could probably do more to make sure consumers know about proposed rate changes, including requiring emails to go out to each customer. For now, housing rates continue to increase, leaving many California homeowners in a difficult place.
Photo by Jp Valery
