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California Insurance Chief, Farmers CEO ‘Look Outside’ for Answers to Insurance Crisis

Published on Monday, April 15, 2024 | 4:00 am
 

State Insurance Commissioner Ricardo Lara — who is in the midst of issuing new regulations to address California’s insurance crisis — told CalMatters this week that he feels like he is “in a forced marriage” with the insurance industry, and that “we’re staying together for the kids.”

But Lara found common ground with a major U.S. insurer’s CEO at a first-of-its-kind summit  in Los Angeles on Wednesday.

Other insurance commissioners, government officials, insurance industry representatives, nonprofits and academics from around the nation and world gathered for the Global Sustainable Insurance Summit this week — in a state where residents are dealing with higher premiums for homeowners and auto insurance, with some of them finding it tough to get insured at all.

When Lara asked Farmers Insurance CEO Raul Vargas what it would take to get insurers to start writing policies in California again after they stopped or delayed new business, Vargas pointed to one of the regulations Lara unveiled recently: allowing insurers to use catastrophe modeling when setting their rates. Catastrophe modeling would let insurers use future risk assessments combined with historical data to help price their premiums.

“Insurers need the confidence to price correctly for the risk,” Vargas said, adding that Farmers has had “constructive conversations” with California’s Insurance Department that has allowed the company to remain in the state. It is notable that the CEO of a major U.S. insurance company publicly expressed support for Lara’s plan. Insurance trade groups have mostly been speaking on behalf of insurers so far about the insurance situation in the state — which has forced many homeowners to turn to the last-resort FAIR Plan.

Some Farmers affiliates stopped writing insurance in California late last year, but Farmers spokesperson Luis Sahagun told CalMatters at the time that other Farmers entities, which provide insurance to nearly all of the companies’ customers in the state, were staying put.

Lara and Vargas also agreed on a few other things that both regulators and the insurance industry need to do: share data, work together, communicate with consumers about the importance of mitigation and learn from others.

Vargas, who became CEO in 2023, said he is stressing the importance of curiosity at Farmers. “Don’t think you have all the answers,” he said. “Look outside. Even to your competitors.”

Lara expressed a similar sentiment about looking outside in an interview with CalMatters on Tuesday. He said his department needs to soak up others’ expertise as it deals with what he calls a pivotal moment. He also said this week’s gathering was “critical” and that he hopes the U.S. insurance industry comes away from the summit with new ideas.

“This is about bringing the global perspective to insurers,” Lara said. “We need to have conversations beyond ‘we need more rate’,” the commissioner said, referring to insurers asking the state to approve increasing their premiums.

Present at the two-day summit were representatives from insurance companies that have paused writing or pulled back on new and certain types of insurance policies in the state. Those companies include CSAA, Mercury Insurance, American Family Insurance, Nationwide and Chubb, according to the Insurance Department.

State Farm, which frustrated the Insurance Department last month when it said it would not be renewing tens of thousands of homeowner policies around the same time Lara introduced his draft regulation on catastrophe modeling, did not appear to have sent a company representative.

Ceres, a nonprofit organization that works with investors, companies and other nonprofits to advocate for sustainability, funded the event and worked with California’s Insurance Department to organize it.

“The climate crisis is a financial risk for all entities and has impacts across industries,” said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, in an interview with CalMatters. ”It’s important to bring people together to help Californians and others across the globe.”

CalMatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

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