Early this year, PIFC opposed AB 2367. AB 2367 (Gonzalez) died in the Assembly Insurance Committee in early May.
AB 2367 would have established a task force to develop community and home hardening standards – and would have required an admitted insurer to write or renew a policy for an existing property that is certified by the Task Force. We know you don’t want to nonrenew your policyholders. But is forcing you to take on unreasonable risk – indefinitely – really the way to go?
Insurance coverage mandates, such as the one proposed by this measure, threaten insurance availability for all Californians. History has demonstrated that when states try to force companies to sell insurance at an inadequate price, with uncontrollable risk, it ends badly for everyone. In California, after the 1994 Northridge earthquake, insurers were required to offer earthquake insurance despite concerns that they would not have enough money to pay claims if another big earthquake hit. As a result, by January of 1995, companies representing 93 percent of the California homeowners’ insurance market had either restricted or stopped writing homeowners policies, sending the California housing market into a tailspin.
Bills like AB 2367 (Gonzalez) are why we work hard to anticipate legislative threats and monitor bills that are more thoughtful. In comparison, AB 2167 (Daly) provides a comprehensive solution that will result in increased availability of admitted market insurance with better coverage and lower rates than the FAIR plan, and reduced risk of catastrophic wildfire through home hardening and community mitigation.
PIFC has also opposed SB 1199, authored by Senator Mike McGuire. Major provisions of SB 1199 would:
- Establish the Commission on Home Hardening to develop a 3-tiered system of fire prevention levels for structures and communities in the Wildland Urban Interface, and guidelines for certifying those structures and communities that meet the new standards.
- Require the Commission to work with stakeholders to develop the 3-tiered system and related regulations.
- Require an insurer to renew coverage, for any residence located in a community certified under the wildfire community hardening standards, for three years.
Yet again we face a policy idea that seems consumer–friendly but may actually result in more nonrenewals and risk insurer solvency.
The concept of a Commission on Home Hardening definitely has merit. There is a growing body of scientific literature showing that homes with fire-safe features, including defensible space and fire–resistant building materials like fiber-cement siding or metal gutters, have a higher likelihood of surviving an ember-driven fire. However, this bill puts the proverbial “cart before the horse” by presuming the output of the Commission before it has done any work. It is not clear that the tiered rating structure and the stringency limitations imposed by this bill are the best approach for home hardening. It is even less clear that they have significant relevance in rate setting. It would make more sense to have such a commission explore these issues and publicly report their findings for consideration by the affected communities, the Legislature, and other interested stakeholders.
While the average price of homeowners’ insurance in the United States has increased 53% in the last 10 years, it has only risen 10.6% in California. When SB 1199 (McGuire) would create discounts based upon unproven mitigation savings, it becomes untenable for insurers that are trying to serve California homeowners based on already inadequate rates. Further, this bill not only mandates a problematic rate scheme, but would also eliminate an insurer’s ability to manage risk. The combination of inadequate rates and unmanageable risk would put California insurers in jeopardy of financial collapse.
SB 1199 (McGuire) is passed off of the Senate floor but was significantly amended to remove the major insurance provisions. Our lobbyists worked tirelessly to oppose the bill, work with the Senate Insurance Committee Chair, and explain the significant drawbacks in the bill. We’re staying nimble, we’re staying vigilant, and we’re fighting for you.