Recommendations Leave Insurance Industry Unaccountable for Climate Change and Destabilizing Misconduct in Wildfire Marketplace
Los Angeles, CA -- A group convened by Insurance Commissioner Ricardo Lara to investigate insurance-related climate change solutions is recommending he let insurance companies insert secret models into ratemaking, a top deregulatory priority of the industry in California.
The 67-page draft report, made public late last week, explicitly excludes discussion of the major issues Californians are facing in the insurance marketplace. These include massive claims handling problems experienced by policyholders after the recent wildfires, most insurance companies’ refusal to reduce premiums or restore coverage when homeowners and communities take steps to protect homes from wildfire risk, and insurance companies’ nearly exclusive power to choose who may or may not buy home insurance coverage after a wildfire. It also deliberately ignores the insurance industry’s own role in causing the severe climate events it insures against by underwriting and investing in polluting fossil fuel projects and infrastructure.
Consumer and policyholder advocates noted that the Commissioner’s “Climate Insurance Working Group” contains two insurance industry executives and an industry lobbyist but not a single consumer representative.
“It’s no surprise that a panel seeded with insurance industry representatives would come up with recommendations for ways that insurance companies can raise homeowners’ rates and withdraw from communities, rather than investigate and address the insurance industry’s role in creating climate change by continuing to insure fossil fuel projects, but it is surprising that the insurance commissioner would countenance those recommendations,” said Carmen Balber, executive director of Consumer Watchdog. “This draft report places responsibility for addressing problems in the insurance marketplace on consumers, policyholders, taxpayers, local and state government – everywhere but on the insurance industry. It only raises climate solutions that the insurance industry can love.”
Read the draft report.
Insurance companies in California currently use decades of actual loss experience to predict what it will cost to insure homeowners, and must open their books and fully justify their projections under Proposition 103. Insurers seek to replace that data with private “catastrophe models,” projections based on 3rd-party algorithms that they claim are proprietary and not disclosed to the public. The secrecy of such private models would prevent the Insurance Commissioner or the public from verifying the assumptions made in determining the appropriate rate.
For example, a recent rate filing by insurer Pacific Specialty sought to raise rates using a model’s projections for fires that follow an earthquake. Consumer Watchdog uncovered that the company was using two different models – and that one model predicted nearly three times the losses as the other. The wildly different conclusions of the two different models makes clear that any catastrophe model used in rate-setting must be fully public and transparent to confirm their accuracy and prevent discrimination.
“Letting insurance companies exploit the climate crisis to get deregulation under the door would be a huge mistake,” said Balber. “Consumers need more, not less, transparency about the price of home insurance in California.”
A petition to Insurance Commissioner Lara by 60 environmental, consumer and social justice organizations sought emergency rules to require insurance companies disclose the fossil fuel projects they insure. Lara rejected that petition on Earth Day 2019 in favor of “collaboration” with the insurance industry, allowing insurers to keep their complicity in global warming secret.
Read the groups' petition here and rejection here.
- 30 -