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Proposed Regulation to Require Discounts for Wildfire Mitigation Measures Must Also Regulate Scores Secretly Used to Deny Home Insurance, Consumer Groups Urge Insurance Commissioner

Wed, 11/10/2021 - 10:43
Posted in:
Wildfires

Los Angeles, CA – Consumer groups said a regulation proposed by California Insurance Commissioner Ricardo Lara to require discounts for homeowners who take home-hardening steps to reduce their risk of damage from wildfires must also apply to insurance companies' decisions about which properties they will insure. California homeowners, businesses and communities face unfair price increases and non-renewals, and new wildfire mitigation rules must protect against both, said the groups today at a public hearing convened by the Department of Insurance.
 
Consumer Watchdog, Consumer Federation of America, and Consumer Federation of California voiced support for the Commissioner's proposal to require insurance companies to reduce premiums for home and business owners who take wildfire mitigation steps on their properties, or in their communities, such as by modernizing roofing and building materials, installing sprinklers, and clearing brush around their properties. However, the groups urged the Commissioner to strengthen his proposal to prevent insurers’ from arbitrarily refusing to cover individual homes or whole neighborhoods, in violation of anti-discrimination provisions under insurance law Proposition 103.
 
The groups also backed provisions of the proposed regulation to mandate that enforce voter-enacted Proposition 103’s transparency requirements by requiring public disclosure of information relating to how wildfire risk models and “scores” are used to determine premiums, but said those provisions must also apply to insurers’ decisions about which properties to deny coverage.
 
“Californians who invest in protecting their homes and their communities from the devastation of wildfires must be protected against price gouging and losing insurance coverage,” said Pamela Pressley, Senior Staff Attorney, on behalf of Consumer Watchdog. “Requiring discounts for homeowner and community mitigation efforts proven to lower wildfire risk is necessary to ensure that premiums aren’t excessive or unfairly discriminatory. But more protections are needed to prevent insurance companies from denying or nonrenewing coverage to homeowners who invest in home-hardening measures.”

“This is a good first step to provide incentives that will directly help consumers to better protect their homes, however, there are a number of specific improvements that should be made to the Department’s proposal,” stated Robert Herrell, Executive Director of the Consumer Federation of California.
 
Consumer Groups Urge Action
 
Today’s workshop is the third in a series that the Commissioner has convened since October 2020 to address soaring premiums, withdrawal of coverage from neighborhoods, and non-renewals in California’s homeowners insurance marketplace after wildfires revealed that climate change had caught insurance companies off-guard. Insurance companies have falsely blamed Proposition 103 for their destabilizing actions, saying they need to be free of public oversight in denying and nonrenewing coverage and permitted to use secret models and algorithms rather than justify their rates and underwriting decisions based on available data. In joint comments submitted to the Commissioner today, the consumer groups explained the necessity for stronger consumer protections:
 
"Key to reducing wildfire risk is taking community-level and individual property-level steps to protect properties, but currently there’s no financial incentive to take on these expensive property upgrades. For far too long, many insurers have failed to recognize the significant expenditures that homeowners, business owners, and communities undertake to protect their properties against wildfires, and instead have continued to overcharge, deny, or nonrenew coverage without considering the risk reduction of policyholders’ mitigation measures, often using privately generated, unregulated algorithms and models to “score” homeowners without their knowledge. As a result, millions of homeowners are arbitrarily denied coverage, nonrenewed, or are facing unfair premium overcharges, which in turn has destabilized California’s homeowners insurance market."
 
The proposed regulations would adopt measures to stem these arbitrary practices by:

  • requiring insurers to provide premium discounts to property owners who undertake mitigation efforts to lower their risk of wildfire losses.
  • providing clear standards to enforce Proposition 103’s requirements that insurance companies file a complete rate application and publicly disclose all information submitted to the Commissioner, including the models they use to assess wildfire risk and related documentation, which insurers often seek to keep confidential. 
  • requiring insurance companies to give notice to consumers of their assigned wildfire risk score and steps they can take to lower their risk and associated premium, as well as provide consumers the right to appeal their scores.

 
“While these steps further Proposition 103’s goals of making insurance fairer and more affordable, some additional amendments are needed to provide enforceable regulatory standards and to prevent insurance companies from unfairly denying or nonrenewing coverage to property owners who have lowered their wildfire risk through mitigation,” the groups stated.
 
The consumer groups offered their recommendations for improving the proposed regulations by:
 

  • Strengthening the mandatory mitigation factor standards with clearer terminology;
  • Requiring that all provisions – including use of mandatory mitigation factors; public filing and disclosure of models; and the notice and appeals process – also apply to wildfire risk models and scores used to determine eligibility and nonrenewal criteria
  • Clarifying in explicit terms that wildfire risk models are not allowed to be used to project losses for determining overall rates under existing regulations;
  • Ensuring that any wildfire risk models used by insurers are based on the best available scientific information and conform to actuarial standards of practice and applicable statutes and regulations; and 
  • Cleaning up and strengthening the wildfire score notice and appeal requirements.

 
With the adoption of these amendments, the groups urged the Department to “move forward swiftly with noticing a rulemaking hearing and adopting a final regulation so that homeowners and communities can realize the savings they deserve from their wildfire mitigation efforts."
 
Read today’s joint comments of Consumer Watchdog, Consumer Federation of America, and Consumer Federation of California. 

Read Consumer Watchdog's January 21, 2021 letter to Insurance Commissioner Lara urging insurance discounts for homeowners, protections against policy cancellations and withdrawals in wildfire areas.

Consumer Watchdog also testified on the industry’s actions in a virtual hearing last Fall.

Watch the video, Consumer Watchdog presentation at 1:38:50
 
Read about voter-enacted Proposition 103’s protections against unfair insurance premiums and practices.
 
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