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Senate Education Committee California State Senate
Follow its sittingsSpeaker 4
So it's the bill is not intended to affect fully autonomous driving, the Waymo's and the other cars that are out there. California has a very substantial regime in that space. Instead, it is in this interstitial, this space where humans and robots are driving a car a little bit each and trying to assure that as the technological transition happens on AI autonomous features that human beings retain the basic right to drive a car that they bought to drive. It sounds simple. It sounds obvious that, of course, if you buy a car and it has some advanced features on it, that you will always be able to drive it.
But some vehicles are now seen principally as delivery mechanisms for software services. And those software services are moving to subscription based services, in which you're also required then to accept software updates. So the bill, as we began, was trying to get at this issue of how do we assure that as the technology gets better, that we don't reach a point where just overnight human drivers in California lose the right to drive the car that they bought, either through the mechanism of the tort system or the insurance system or what have you. And what after extensive conversations, both with the insurance industry, with the department, with your staff, and pretty much with each and every one of you, it's become clear that the clearer mechanism to address this issue is actually not directly in the insurance space, but instead it is in the software space of grappling with the ability of a company to, through a software update, even potentially disabling the ability of a human being to drive their car under some or all circumstances. And so I want to thank chair in particular, many, many others for helping us to think through these issues and to realize some of the both the roadblocks and the dead ends that we were hitting here.
We if the committee is prepared to allow us to move forward, we would be going to the Transportation Committee next, and in that committee, we would be proposing to remove the provision the policy provisions with respect to insurance to auto insurance and instead shift to the auto itself in the jurisdiction of that committee to prevent software mandatory software updates from disabling human driving of vehicles that folks purchase in order to drive as human beings.
Speaker 1
Thank you, Senator. Appreciate the acknowledgment and the unique circumstances of this bill. Just will say and give you credit, we had a long conversation about the bill, about the procedural progress of the bill, about jurisdiction, and it may be very premature from a legislative standpoint, and it may be still to be determined and too far into the calendar respect to our purposes today about where appropriate jurisdiction may ultimately lie and where you want to move this bill forward. But I really want to acknowledge the Senator's leadership and guts, for lack of a better word, for seeing the horizon issue, whether it's ripe or not legislatively, but it's a complicated issue that will be a reality upon us as a society and will impact numerous overlapping areas of public policy. And so I made the promise to the author that I would help facilitate the ability to keep the bill alive at least for those purposes, if anything, to begin an important conversation.
And so for that, I give you credit. Given that we are here in hearing today and given those representations, still procedurally we do have some obligations as you well know, and so I have to ask are there any primary witnesses in support of your legislation? Are there any individuals present that would like to approach to acknowledge or represent support for the bill? I have to ask as well with respect to opposition, I see none. Are there questions or comments from members of the committee?
Senator Becker followed by Senator Rubio.
Speaker 5
Yeah, I'll just make a quick comment. I think the chair said it very well. I appreciate you looking forward thinking about what may happen as these technologies are know, sometimes, you know, things take longer than projected, but then happen kind of all at once, right? So I was, I hope that autonomous cars would come before my kids were able to drive. Unfortunately, that didn't happen.
But now, we do see the technology moving very quickly. And, yeah, some of the scenarios are, you know, potentially sci fi or what were sci fi, and we'll discuss my movie script another time in this area. But, you know, some things that we thought were science fiction are now, or look like science fiction are now, are now coming close to reality. So, I appreciate you tackling this and look forward to, you know, want to support and move forward and look forward to seeing how it evolves.
Speaker 10
Thank you, Chair. I just want to add my voice as well because clearly this is not, you know, what's in print is not what we're necessarily voting on. So I just want to make sure for the record we reiterate and understand that this is going to be taken out of the insurance realm and, we're allowing you to go fix it where it's appropriate. And so with that, I will support it again, but very clearly with the understanding that it will not be an insurance related bill. And the author has also guaranteed verbally, and we had a discussion about it, so I appreciate you willing to state that for the record.
Speaker 3
Thank you, Mr. Chair. I would echo everything the Chair said. And Christopher and I excuse me, Senator Cavaldin and I, we've known each other a long time. We had a good discussion about this also.
And when I first read the bill, I was kind of confused by the approach, but he quickly cleared it up for me. This would be like me selling somebody a car that they really like, and then six months later taking them a completely different car that they didn't want and taking the car back that they did want and forcing them to keep that car. That's the extent to which software can be changed on these vehicles and it is a brave new world that way and I think what he's trying to address makes perfect sense.
Speaker 1
I will Senator Richardson would you like to do so. Alright. The the bill is moved to keep it along. Please call the roll.
Speaker 2
Nilo, aye. Becker? Aye. Becker Aye. Menjivar.
Richardson Aye. Richardson Aye. Rubio Aye. Rubio Aye.
Speaker 1
Thank you. The bill's out by the two. We'll keep it on. Are we do we have everyone? Are we missing?
Menjivar. We'll place that on call. Thank you, Senator, for your time and efforts.
Speaker 1
Of course. File item two is SB thirteen fifteen by the chair. At this time, I'll turn the gavel over to the vice chairman. Mr. Vice Chairman and members, with your indulgence, we're awaiting the arrival of the commissioner, who I'm told is right here.
And
Speaker 1
All right, Mr. Vice Chair and members, thank you. I'm pleased to present SB eight seventy six and would first like to acknowledge we will take committee amendments as indicated reflected in your staff analysis. Certainly want to extend my thanks and appreciation to all key stakeholders who we've engaged with, with respect to this particular piece of legislation. When I introduced this bill, I did so with the specific intention to have a broad conversation about insurance availability and affordability.
Also And have a conversation specifically about ways in which we can comprehensively reform the claims process. This represents a broad measure, a complex measure, as many of you are aware, and is deeply informed by the awful experience this state had at its worst so far in January with some of the destruction that we saw in Los Angeles County and surrounding areas. Out of this pain and suffering of thousands of people, and with the well known and ongoing and anticipated increased propensity for severe wildfires, one thing that's become clear. Decades old insurance laws, practices are no longer sufficient to meet the moment. A year on from Los Angeles, survivors have to this day continued to report ongoing concerns and problems, many of them legitimate and deserving of attention.
With accessing insurance benefits, with delays, denials, and sometimes miscommunications, circumstantial or otherwise, from insurance companies topping the list of concerns. The number of complaints filed in the administrative process with the department have substantially increased since that time. We are attempting to take a lesson from this situation and seek to find operational ways to reform the claims process, cut red tape, improve payouts, and end delays. As the chair of this committee, I am committed to balancing the needs of both affordability and availability, and to ensuring that policies keep pace with the needs and the realities of the moment. However, also, that whatever architecture we can move forward is workable and operational and avoids unintended consequences.
This is why I've engaged with the broad coalition of interest groups across the spectrum, including from the insurance industry, and I have heard and listened to their concerns about potential cost impacts of the operation of this bill. In addition to accepting the committee amends, we have made specific, which of course removes the offer of guaranteed replacement costs, which is a significant and top concern for the insurance industry. I remain committed to working on issues like the mandatory additional 50 extended replacement cost and the doubling of additional living expense coverage after a disaster has been declared before the bill leaves probes. At the same time, I'll be working with stakeholders to address issues of adjuster delays and restitution on enforcement and penalties for policyholders, critical areas of concern for survivors, and in the opinion of many, critical to address inappropriate conduct where appropriate. SB eight seventy six has some overlap with some other bills pending before this committee and I as chair intend to work diligently conflicts with that bill before it is presented here.
As a comprehensive piece of legislation, this bill tries to fill critical gaps that were brought to our attention in the most destructive ways, protect homeowners at their most vulnerable moment, and remain committed to addressing these gaps while protecting policyholders from increasing costs where we can. Obviously, with me here today is the Honorable Insurance Commissioner Ricardo Lara, as well joined by Amy Bach with United Policyholders, and I am informed as well from the commissioner's office we have a technical expert witness available for questions as well. Commissioner?
Speaker 7
Thank you. Thank you. Thank you, Vice Chair Nilo. Good afternoon, committee members. Thank you for the opportunity to testify in strong support of SB eight seventy six, the Disaster Recovery Reform Act, a measure I'm proud to support and sponsor.
With me today is Deputy Commissioner Tony Signorelli. Before I begin, I wanted to say something plainly. I have overseen California's insurance market through the most difficult period in modern history, a new era of megafires and gigafires, when insurers were pulling back, curtailing underwriting and placing caps on new business. I did not inherit a stable market. I inherited a market in crisis.
After years in which tough decisions were delayed or avoided, I did the politically unpopular thing. I acted. So when I hear that the claim claims that this bill is a market destroyer, I have to be honest. I actually scoffed. Do you really think I would sponsor a bill that would take us backward to the chaos I fought so hard to stabilize?
Do you really think I would once again put my department, my staff or myself through the political attacks, the personal pressure if I believe that this bill would actually harm the market? Of course not. SB eight seventy six is about one thing: making disaster recovery faster, clearer and more fair for the families who have already lost everything. And let me be equally clear: The sustainable insurance strategy is about long term market health. SB eight seventy six is about what happens after a family loses everything.
These are separate issues. And no paid advertising campaign, no slogan, no social media ad should confuse the two. As you all know, California's wildfire reality is now a year round. Fires are larger, faster and more destructive than ever. 2019 was a definitive turning point for California's wildfire landscape, marking a transition into a new era, an era where 100,000 acre mega fires and 1,000,000 acre gigafires became the recurring reality rather than an anomaly.
Last year, 14 destructive fires across L. A. And San Diego counties made this particularly clear. As you all know, the Eaton Fire in El Cedeno and the Palisades Fire in Pacific Palisades alone destroyed or damaged more than 16,000 homes. Over the past year, my department has held multiple insurance workshops, met with survivors across the state, investigated more than 2,000 consumer complaints, and recovered over $250,000,000 for policyholders to date.
That's just over one year. And yet, more than a year later, survivors are still reporting delays, denials, miscommunication, and a claims process that forces them to fight for every single dollar. These are not isolated stories these are symptoms of a systematic failure. Underinsurance has become the rule, not the exemption. Replacement cost estimates are outdated.
Mandatory building code upgrades have policyholders with insufficient coverage. And survivors face what they call adjuster roulette, starting over every time a new adjuster is assigned. This is not how a recovery should work. And let me tell you what SB eight seventy six actually does. It is designed to break this cycle and restore confidence in a system that families depend on at the worst moments of their lives.
The bill is about recovery. It's not about rates. It's about what happens after a family loses everything. Accurate real world replacement cost estimates. Families should not discover after the total loss that they were massively underinsured.
SB eight seventy six requires insurers to provide estimates that reflect actual construction costs, not outdated numbers. Stronger coverage options, not mandates. SB eight seventy six requires insurers to offer sufficient extended replacement costs. It does not force anyone to buy this coverage. It simply ensures families have the option to protect themselves.
Building code upgrade coverage. When rebuilding, homeowners must meet current safety codes. SB eight seventy six strengthens coverage so families aren't blindsided by out of pocket costs for mandatory upgrades. Faster, fair claim payments. This bill establishes clear timelines that standardize payments to policyholders.
Actual cash value within thirty days, replacement cost benefits within thirty days of documentation, interest on late payments. This ends the slow fragmented claims process that has kept families displaced for months. SB eight seventy six requires a status report within five days of any adjuster so survivors don't have to start over. For the first time insurers must also submit pre disaster emergency response plans to the department. This is this ensures insurers are ready before the next fire, not scrambling after.
It also provides stronger penalties and mandatory restitution. During a declared disaster, penalties for unfair claims practices are doubled and insurers must provide restitution when they violate the law. This ensures consequences when families are harmed. You will hear arguments today that SB eight seventy six will destroy the market, raise premiums or drive insurers out of the state. And let me address this directly.
SB eight seventy six is about recovery, not rates. The sustainable insurance strategy is about long term market stability. SB eight seventy six is about what happens after the disaster. These are separate issues, one that does not undermine the other. SB eight seventy six will likely create additional costs for the insurance sector, specifically in the aftermath of a wildfire, but it also will improve recovery for survivors and the communities.
It will help address repeated concerns that my staff and I have heard directly from countless of wildfire survivors about their claims experiences with their insurers and any costs associated with this measure can be reflected in future insurance rates and rate filings subject to review by my department. The SIS is working and insurers must do their part. Seven insurers have already filed SIS filings. Five have been approved by my department. The first approved plan took effect on March 1.
Insurers say, Let the SIS work. My response is simple. Where are your rate filings? We will continue to do our job. We need you to submit your filings.
You can't say, Let the SIS work and not submit your SIS filings. SB eight seventy six does not create unlimited liability. The bill requires insurers to offer coverage options, not provide them automatically. Consumers choose what they want and what they can afford. It also helps with faster payments and clearer communications, not to destabilize markets.
They stabilize families, they stabilize communities, and it stabilizes recovery. Survivors cannot wait years for clarity. We all have heard too many stories of families still displaced years after the fire. SB eight seventy six addresses the gaps that caused those delays. This bill is not about adding paperwork.
It's about adding dignity, stability and fairness. When a family loses their home, they should not have to fight their insurer, navigate a maze of adjusters, wait months for payments or discover they were underinsured only after a total loss. California consumers deserve a system that meets the realities of today's disasters, not the world of twenty years ago. SB eight seventy six is a comprehensive survivor centered reform that strengthens coverage, speeds recovery and holds insurers accountable when California needs them the most. I respectfully ask and urge your I vote so that wildfire survivors and all disaster survivors can rebuild with dignity, stability and a full protection of the coverage they actually paid for.
Thank you. I'm happy to answer any questions.
Speaker 3
We allowed you to go over the two minutes. Oh, sorry. I thought that was appropriate, given who the speaker is. Do we have other members, other people attending that wish to speak in favor of this bill?
Speaker 3
Okay, let's we'll take the second primary witness first, and then I'll take the Me Too testimony.
Speaker 8
Thank you. So my name is Amy Bach. I'm one of the founders and the executive director of a nonprofit that was born in around the Oakland Berkeley fire and has been serving California insurance consumers now. It's our thirty fifth year of service and our anniversary. And we are very grateful, to Chairman Padilla and Vice Chair Nyalo and all of the committee, for considering this measure.
We also will be urging your aye vote. Our organization has been working in, the aftermath of wildfires for all that time, and I've seen firsthand, the, issues that this bill is very, very narrowly tailored to address. So everything that this bill takes aim at are the exact same problems that consumers have been bringing to our organization. I provided the committee staff with our twelve month survey results from the L. A.
Fires. You know, this body has enacted many previous measures over the years, and don't worry, I'm not going to try to match his time. I appreciate your indulgence.
Speaker 8
Improve the prompt and full payment of insurance funds to disaster impacted households, prevent people from being under insured and or taking advantage of, avoid claim delays, reduce the hassles of things like itemizing every single peppered salt shaker that they lost, and avoid claim delays and disputes, and give this very important agency the tools that they need to keep tabs on the market. Because obviously, we want, as the commissioner said, we want people's policies to work for them. We want, the insurance they've invested in to deliver that peace of mind that it's advertised to give them. We don't want them having to run to lawyers to get help and file lawsuits. And and that is a a core of what we're trying to do here is build on what you've already done, and and what we now know still needs more work.
So, there's a lot of specifics in this proposal. Our organization works very closely with the complaint, handling unit. Mister Signorelli over here is the bureau chief. And so, we we work together on these issues. And we, my organization, we give people DIY guidance, and then we always say, next stop, if you can't work it out with your insurer directly, you should go to the DIY.
So they're spot on with everything that they've got in this bill. And when when you know, we have been doing these surveys to find what people's insurance gaps are, it typically has been two thirds of disaster survivors come up short on what they need to put the house back that they lost. After the LA fires, only seven percent of the people who answered our survey said they had enough insurance. So we haven't solved the under insurance problem.
Speaker 8
I sure will. So we've got the under insurance fix, Code upgrades, we want people to rebuild resilient. We want them to comply with codes for lots of reasons. And finally, the ALE, we did you did a great job giving people up to three years, but then the dollar amounts are not enough. So we have to fix that.
And then giving them that one place, the insurer, one adjuster the whole time will really help people, get their claims, resolved. And then finally, we don't you already gave people the right to replace by buying instead of rebuilding. There's a lot of good reasons for that. We just want to make it more feasible for them to do that without leaving money on the table. I thank you for your time, and I do urge your aye vote.
Speaker 3
Okay. Now, others in the room, state your name, who you're with, and your position on the bill.
Speaker 6
Thank you, Chair, Vice Chair, members of the committee. Marissa Hickerman with Tratton Price Consulting, registering support on behalf of California environmental voters. Thank you. Good afternoon. Nicole Curian with the Office of Los Angeles Mayor Karen Bass in strong support.
Thank you.
Speaker 3
Keith Coolidge, on behalf of AARP California, in support. Any others in support? We got a tweener.
Speaker 2
Good afternoon, Mr. Vice Chair and members of the committee. I'm Robert Harel. I'm the Executive Director of the Consumer Federation of California. Just a couple of quick points.
Speaker 9
We have no official position on the bill. We are encouraged by many of the provisions within the bill. Hope they survive. I would respectfully disagree with the characterization that the Commissioner made that he inherited a market in crisis. I think he inherited a challenging market, as would anybody, but so did his predecessor and two predecessors before.
Speaker 9
Fair enough. Two quick points. One, underinsurance has been a problem for a long time. Historically, attempts to resolve underinsurance have been resisted vehemently by the insurance industry. Number two, I do think there's a big problem with what I refer to as the adjuster du jour, and I know that that's one of the provisions that
Speaker 3
These are issues that the other witnesses have covered. Appreciate the echoing, but I gather you're in support of the bill. Position. That's right. Excuse me.
Okay now moving to the opposition primary witnesses in opposition and given the deference that I gave in terms of time with those in favor I will do my best to keep it equal for the opposition. You may proceed when ready and in whatever excuse me order you would like.
Speaker 10
Good afternoon, Mr. Vice Chair, members of the committee. Thank you so much for the opportunity to provide testimony today. My name is Denny Ritter, and I'm here on behalf of the American Property Casualty Insurance Association. On behalf of our member companies, I am here today to respectfully oppose SB eight seventy six, while also acknowledging the author's willingness to work with stakeholders on amendments.
Sincerely appreciate the numerous meetings with you, your office, and the sponsors of the bill. I think we counted eight. We really appreciate the author's intent to remove the guaranteed replacement cost requirement. As you identified, that was a major concern for our members, and so greatly appreciate that. However, even with that amendment, SB eight seventy six remains an extremely broad measure containing more than 20 policy provisions that, taken together, we are concerned would materially increase the cost of insurance and reduce flexibility in an already fragile insurance market.
We're really concerned about the cumulative and unintended consequences of the remaining provisions. The bill does include multiple mandatory coverage expansions, such as increased extended replacement costs and higher additional living limits that will need to be priced into every homeowner's policy statewide, regardless of location or consumer preference. While these benefits may sound helpful in isolation, the reality is that these mandates will increase premiums for all Californians, including those in lower risk areas. SB 80 seven-six also converts certain coverages into automatic payments by requiring 100% of contents coverage without an inventory or evaluation. This issue was just negotiated in Senator Allen's SB four ninety five last year, where insurers agreed to provide 60% without an inventory.
This just took effect four months ago, and so the industry is very concerned that this is up for renegotiation so quickly. And again, this component risks higher insurance costs that ultimately flow back to consumers. And as the Commissioner noted, this is in the midst of the sustainable insurance strategy's adoption. We are concerned that proposals like this will slow that adoption and that progress. We appreciate the author's commitment to continue negotiations as the bill moves forward, particularly to narrow its scope, address our affordability impacts, and avoid further destabilizing the market.
We do acknowledge there are components of the bill that I think we want to work on. You know, the components dealing with how wildfire victims are treated by their companies, that's important, and that's something we're committed to working on. We remain ready and willing to work collaboratively good grief with the author, the committee, and the Department of Insurance on targeted workable solutions that meaningfully improve outcomes for consumers. So for these reasons, while we do really appreciate the amendments being taken today, the trades must the PCA must respectfully remain opposed. Thank you.
Speaker 12
Thank you. Yes. Thank you. Good afternoon, Mr. Vice Chair and members, Seren Taylor, on behalf of the Personal Insurance Federation of California.
Also, thank you for the opportunity to share our concerns regarding SB eight seventy six, and we do want to first thank the committee for the proposed amendments, and we greatly appreciate Senator Padilla's commitment to further reduce the financial impact on consumers. Now, SB eight seventy six set the table for an expansive discussion among stakeholders, and there have been constructive conversations. However, there is a lot more work to be done. We believe without additional changes, the bill will make homeowners insurance significantly more expensive while also making it harder to find coverage. Our cost impact analysis indicates premiums could rise by 15% to 20%, which is about $200 to $350 a year on average and well over $1,000 for those in high risk areas.
The bill layers more than 20 new mandates onto an already strained market, mandates like higher extended replacement costs, expanded additional living expenses, and full content payouts. These are not marginal changes. They are fundamentally increased claim severity across every policy in the state, and those costs will drive sticker shock in premiums statewide. Even consumers in low risk areas will pay more for benefits they may not want or even need. At a time when affordability is already a crisis, we think the bill moves in the wrong direction.
It's also concerning that the bill weakens claims controls by requiring rapid payouts without appropriate verification, which increases fraud risk and inflates costs. I think the most serious consumer harm, though, will come from reduced availability. And as costs rise and liabilities expand, insurers could be forced to pull back writing fewer new policies and nonrenewing more existing ones. Now, we've already seen this dynamic in California. Rather than resolving the problem, we think that SB eight seventy six will accelerate the problem, And we want to see consumers have more stable, affordable, and available insurance.
And we're concerned that this bill will undermine those efforts. So, respectfully urge a no vote, and thank you.
Speaker 10
Good afternoon. Sherry McHugh representing the Pacific Association of Domestic Insurance Companies, respectfully in opposition, and we look forward to working with the author and the department as the bill moves through the process. Thank you.
Speaker 13
Thank you. Annalie Augustine, on behalf of the Civil Justice Association of California, also respectfully opposed. Thank you.
Speaker 4
Good afternoon, Mr. Vice Chair and members. Karim Darisi on behalf of the California Building Industry Association with a respectful opposing list amended position. Very grateful to the author and to the commissioner for their leadership on these issues, and we look forward to continuing to engage on the measure. Thank you.
Speaker 3
Others who are opposed, seeing none come forward, bring it back to the committee. Senator Becker, then Senator Rubio, then Senator Richardson.
Speaker 5
Well, you. I want to first, I would like to thank the insurance commissioner for being here and for all your efforts to stabilize the market and get us back on track and bring insurers back to California. Thank you for those efforts. I want to thank our chair for bringing forward this comprehensive and meaty piece of legislation. I know there's much conversation we'll have today and you know going forward on this bill and I'm sure there are some things to iron out.
And I'm sure there are other folks, including our former chair, who know more about these topics than I do. I just do want to, from my vantage point, know, I'm in the northern part of the state. I didn't, don't represent obviously the folks that were affected in Southern California. But I do want to remind folks that we are talking about a total loss situation, right? We're talking about a total loss situation.
And I do need to read because I've checked in a friend, you know, a year after the fire and he sent me a long list of things. I'm going take the opportunity to read here because this is relevant. He said in terms of insurance, different companies pay out different percentages of personal property. Safeco paid out 50% to us, while others have received 60%, 70% or more. Safeco, which is company I'm happy to discuss with afterwards, is requiring a list of items or a series of two to three hour verbal interviews to go room by room.
Why did they write and bind a policy for personal property coverage that they want itemized now down to the number of paper clips and jars of peanut butter? If I am paying for coverage that was bound, pay out. It's not simply about the money either. I do not want to torture myself going through everything I used to have and no longer own. It's terrible.
This is just an email that I received relatively recently. On the ALE coverage, which again is a subject I'm less knowledgeable about, want to dive in, but he does talk about how in his case, it's a high demand area and low inventory. And the ALE doesn't cover our living expenses. It was a deal we cut early on before we understood what would be required. This insurance company I mentioned earlier is now saying they'll only cover ALE for another year despite the fact it would take longer than a year to get to plan, get permits and rebuild.
A lot of other stuff in here I could read but I did want to share that. And so I appreciate, you know, it gives me personally, you know, given if someone doesn't represent these areas, although I've heard a lot certainly from my colleagues, you know, understanding of the toll this has all taken and make me feel as a lawmaker that there has to be a better way and I appreciate you all working to find a better way for these people who have experienced total loss. And again, know there's ongoing conversations to be had and, you know, changes were already made in this committee, but I do appreciate that you're taking this on and moving forward in this area.
Speaker 6
Thank you, Vice Chair. Appreciate it. You know, first of all, I want to thank Insurance Commissioner. I since I've been working with you for the last seven years, at least, I want to validate the work that you've done. You know, we spend so many hours even on holidays and even on weekends.
So at least I want to just take a moment to say thank you. The work that you've done has required a lot of attention and you certainly have been very present through our conversation. So thank you. You know, secondly, I know that we're drilling through we're going through some very difficult times. And I think the insurance commissioner stated earlier, you know, we used to have fire seasons and now they're gone.
This is our new normal. And the more fires we have, the more things we have to fix. And I appreciate the author of some of the conversations we've had. And it's about sitting down with the stakeholders and coming to to a good middle ground where we're making sure that every person is taken care of. This is the most difficult time.
I've also toured the impacted areas. I've spoken to so many victims and it's heartbreaking. I can't even put myself in their shoes. So thank you for trying to to ensure that they're taken care of in their most difficult and dire times. But I also appreciate your willingness to discuss some of the areas that, you know, can potentially impact the affordability of insurance.
We know that insurance right now is very high and the availability crisis still lingers. And thank you for agreeing to some of the amendments that we discussed and moving forward. You agreed to continue to work on some of the issues that that I think we can find consensus on. So appreciate it. And thank you to Amy, who I've worked with as well.
Thank you for the work you do.
Speaker 13
Thank you. I'm going to start with a couple. First of all, it's nice to meet you in person, insurance commissioner. I've seen you a couple of times many years ago, but good to see you, and thank you for your service. We don't say that enough.
I'm going to start off with some general comments, and then I'll get into questions. For me, and for what I hear of people in my district, the biggest thing people want to see regarding insurance is that, number one, it's accessible. That if a person is buying a home or changing coverage or has a different life experience, that they can actually call a varying group of insurance companies and actually get insurance. The second thing people say to me is how expensive the insurance is, and even if they could get the insurance, in many cases, they're afraid that they can afford it. So, I actually asked to be on this committee, and I requested to be on the committee because I was concerned with those two points.
And so I'm hoping, in conjunction with the author, with yourself, the insurance commissioner, and all members of this committee, that we would and now I'm just making a broad statement before I get into my questions of the bill. I'm really hoping that we will be able to bring forward legislation, progress, that would, one, figure out how can we get insurance companies back to California? Because we don't have enough, we don't have enough policies that are available, and they're certainly not affordable. So, for me, that's really what I want to talk about, is how can we get there? The second thing is, insurance commissioner, you mentioned this is a new era.
For me, I would really like to see us be able to create a fund that when and I notice you said notice I said when that when these disasters occur, that we have a funding source to help. And because we can't predict whether it's going to be a major fire, whether it's going to be a major earthquake, I mean, flood, who knows what's going to happen? And I just really think we're as legislators, we're not doing our part by not thinking far enough ahead. So for me, I've heard terms in my previous positions, infrastructure banks, whatever it is, But I really do think, and I'm willing to work with anyone who's willing to do so, to create some sort of fund that owners put in, the state puts in, the industry puts in, we all put in, so we have some money. So when something happens, we can help make people whole.
Why do I say that? Okay, so I'm just sitting here, you know, utilizing, I won't say what device, we don't want to give companies preferential treatment, But on my device, I looked up and I said, How many homes were destroyed? In the Eaton fire, 9,418 homes were destroyed. Imagine 9,418 homes and of those ten seventy one were damaged in Palisades 6,833 homes were destroyed. That's over 16,000 homes.
Then I did the math, because I have an MBA. I did the math and I said how many average homes are in a block? 30 to 70, so I used the number 50 in the middle. I divided 16,200 by 50 homes, that's three twenty four blocks. I don't think anyone could have imagined that we would have fires that would destroy three twenty four blocks.
So to me, what I'm hoping the author and the insurance commissioner and this committee, we will be able to do, I'm going to support the bill moving forward, but I'm hoping that between now and approves and some of the commitments that you made, we will be able to work on. Because, you know, I have an MBA, I've had a small business myself. I don't believe any insurance company anticipated and I am, you know, not on the hook for the insurance companies by any means. But I don't think any business would go into business anticipating and building in a sufficient amount of profit to do business to anticipate they were going to need to pay off on 16,000 homes. I'm sure no one anticipated that.
That's like me, you know, if I had a business and I had to buy supplies, I wouldn't buy supplies for $20.30, 40 times something of what I need that I don't think I'm going to need. I mean, we just don't do that. So I really do not believe that the answer is some of the things that are in the bill. I grew up knowing that if I have a home and I add an ADU to my home, it's my responsibility, as the owner, to go to the insurance company and say, I now have added 300 square feet to my home, and I need to increase my coverage by whatever is assumed the value, dollars 100,000. I always thought that was my responsibility.
I never dreamed that I would think, as is presented in the bill, that we would think that the insurance company would be I mean, I'm about fairness. I'm all in on 90% of what was said, but some of it, it just doesn't even seem to be fair. How would we expect a company to cover something that they don't even know exists in some cases, because a person could or could not have done permits and different issues. But my point is just I think we have to get back to some of I don't want to coin a governor's commercials, but I think we kind of have to get back to the basics. And I just don't see how we can take that responsibility for me as a property owner.
I think it's my responsibility as a property owner. That's what I've always been told. If I buy jewelry, I've been told you're supposed to notify your insurance company. So how this, you know, 50%, 100%, it just seems really not a fair way for us to get to my endpoint, which is my goal that we need insurance companies. So I'm going to support the bill, as I said.
However, I would like to see us look at things like rather than requiring 50% or 100%, say to me as a property owner, Okay, it's your responsibility to advise your insurance company, which I think most policies say, and then say, Okay, now the insurance companies aren't off the hook. If I call them and I say, I've added an ADU, I don't think they should be able to kick me off of my insurance. I don't think that that's fair. So, some of the things that the insurance commissioner has said, you know, yes, it's not fair if someone has been paying on policy and all of a sudden an insurance company flies a drone over a senior's house this happened to my mother and said, Oh, we're not going to insure you because the gate, you know, is bad. You need to fix the gate.
I mean, you know, there's going to have to be some fairness, and I trust that the author, the chairman of this committee, and the insurance commissioner can help us get to some sort of fairness. So I'm in with claim reform. I'm in with that if a property owner comes to an insurance company that they have coverage for and they've paid for, and they say, I've added space, I bought jewelry, I did whatever it is, I think that they should have to provide the insurance and not dump you. But should we require them to pay for something, that really is, I think in my mind, my responsibility to advise them of. And to my knowledge, has always been in California since I've grown up.
The next thing, and I'll be more brief on my responses. When I look at these numbers, what also concerns me are people in my district. So not all of my district, but a large portion of my district. I want to make sure that what we're proposing is not going to be smoothed over to impact the cost of everyone who needs a policy is now paying for what someone chooses to live in maybe a high risk area. I think if a person lives in a high risk area, they know they move there to a high risk area, then they should pay the appropriate additional cost based upon the risk that they are now taking.
But should someone who lives in Compton, who's not living on the bluff, have to pay 100 more dollars or 200 more dollars to make up for some of these mandates of something to help another group? No, I don't think that that's fair. So I'm well aware as a as a member that we have timeframes that we have to get bills in. We have to get amendments in many times. You know, they are not really kind in the work we need to do.
But I just want to applaud you as an author for addressing, I think, one of the major issues that was brought before you. You have expressed an interest in addressing others. I know you to be a man of your word, and so I just wanted to share some of my thoughts that I hope will be discussed between now and as your bill moves forward and as this committee continues. And then lastly, I just had two questions for the commissioner. Why do you think that the insurance companies have left California?
What would you say?
Speaker 13
Then let me rephrase my question. Why do you feel that companies aren't offering policies, more policies to
Speaker 7
people Senator in Richardson, I would love to sit down with you and kind of explain to you the entire sustainable insurance strategy your office to kind of tell you kind of how we got here and how we are stabilizing the market in a way that's innovative. We cannot go back to basics in California. The climate, there's no way it's going to allow us to do that. And so what we've engaged in the last several five, four years has really been two things: really modernizing the regulatory statutes that we have been operating under in California, which were completely 30 years old and were really not allowing us to modernize the way we saw insurance and in a changing climate and really work to negotiate this with the industry about what tools they needed to help them understand better how climate was affecting where they covered, how they covered and why they were curtailing their underwriting and why they were choosing to create gaps. And that was, you know, the cost of reinsurance.
California was one of the first the only states that didn't allow for a pass through on reinsurance rates and didn't allow for the use of I'm sorry, I know that some of the centers already know this, but didn't allow for the use of forward looking technology like catastrophic models, for example. And so we embarked on a couple year journey of, if I give you these two things that you have been asking for, for the last thirty years, what do consumers get? Because this is going to increase the cost of your premiums. So what guarantees do I get for coverage in the wildfire distress areas, right? And so we engaged in what we felt, and I think the industry and some consumers can tell you, was really forward looking visionary strategy that gives us guarantees that one insurance companies are not going to abandon these communities like they used to before and some guarantees that other states do not have.
Insurance companies in other states can submit a rate file and say, We want 50% rate increase, and that gets implemented with no guarantees they're going to ever come back to that community that was ravaged by a fire, say, in Boulder. We don't have that anymore. But they need to submit they to submit the rate files. So when they say, Let's let the assist work, that's great, but you need to submit your rate file so that you are now subject to these new rules, right? And so they sit here and say, Yes, let's let the sustainable insurance strategy work.
And by the way, we have six companies that have and are now writing in these communities, but we need the rest of them to do the same thing. So when they tell you, let the sustainable insurance strategy work, then let us do our job. Submit your rate file under these new rules so then we can hold you accountable to writing in these areas, right? And that is a real kind of fast way to explain to you the years of work that we've done and really years of work that have, you know, really modernized our system here in California. Now this bill really to the credit of our chairman and really working.
This is the piece that gets to all of the consumer complaints that we have heard, not just from the alley fires, but from the over 123 fires that catastrophic fires that have happened since 2019 to my tenure. Almost the end of my tenure. And us being able now to have an honest conversation with you all, with the industry, with consumer groups who have said, Why haven't you done this, this, this? And these are the issues that we're seeing. And so when we hear about cost and the industry come and say, This is going to increase the cost.
Well, you know, let's have that conversation because we can't have it in a vacuum. We need to have it in an open dialogue and a legislative process where we can actually see how much is this going to increase. And maybe for consumers, they just want to know how much is this going to increase my premiums so that we can actually have this conversation. So we're finally bringing you a comprehensive bill where we're negotiating. We're having an open conversation about these critical issues that for years consumers have been asking us to take.
And so this is the dialogue that you're seeing. And this is just the beginning, as we've said. But every single one of these issues has been brought to us and have been informed by every single catastrophic fire that has taken place at every part of the state. And so there's other legislation that's specific to some of the issues that we've learned directly from the Ali fires, which, again, are unprecedented. But this is the consumer portion of these reforms.
And I don't mind having the conversation of, Is this going to increase cost for premiums? Is this going to increase rates? Is this going to but let's have that conversation because I don't want it to be done in a vacuum where consumers are not informed because there are some consumer groups that say this bill doesn't go far enough. There are some consumer groups that say, you know, you should add more. But I wanted to, for the first time, have an actual dialogue with the legislature, with the industry, with consumer groups and the Department of Insurance and figure out what are the things that we're willing to do to increase consumer protection and really be open about how this is going to impact the market and how this is going to increase or decrease the cost for these policies.
We just want consumers to have the choice. If they know that this is going to cost more, give them the option to make that decision for their families and themselves. And as you said, people I kind of disagree with you a little bit. I think just in my experience, I think a lot of people have been pushed out of the urban core because of cost into these environmentally sensitive areas. I do understand that there's some we're not just talking about ski chalets in Lake Tahoe.
But a lot of these people that I've met are retirees that were pushed out of the urban core, who cannot afford to live in the urban areas. And you also brought up a very important point that gets lost in the media and gets lost in the conversations around rebuilding. Insurance gets treated separate in terms of reconstruction. Insurance has to be included in the overall discussion. How we build, where we're building, what materials we're using, building cold upgrades, where you're going to plan a community.
Insurance has to be part of that conversation. Now. It can't be an afterthought. The way it gets reported, it's always a separate issue. It has to be brought into the fold as the mix of everything, right?
And building permits. All that has to be built into the same thing. And so that's what you know, Amy has been working with her team to build all that into integrated together as well. So it's not just kind of an afterthought or just one thing that gets singled out. And so it really has to the next commissioner is gonna really have to work with our local governments because this isn't going away.
Floods are gonna continue. Fires are gonna continue. Earthquakes. And so I agree, we need to be much more integrated. So this is again to just end this, and I'm sorry, Mr.
Chair, I didn't let you answer, but this is the consumer piece of it. And let's have that honest dialogue and figure out where we land so that consumers know, you know, and where we where we all end up here and we're all being open. This is an open process so they understand where we're thinking. But this is what this bill seeks to do, and we're just in the beginning of it.
Speaker 13
So I wanted to extend to you the same fairness of your lengthy response of my lengthy question. But I would say, in response to your response, I still didn't hear you answer why they're not providing the policies, and what I got from all of what you just said is that this is the consumer approach, so I do look forward to meeting with you and learning more. My only takeaway from that would be to the author that in addition to the open consumer discussion, we also have to have a open discussion, which you alluded to, which is how much is it going to cost, who is going to pay for it, And again, what I want to make sure is we're not implementing a policy that is dealing with one problem, but everyone is paying for it, everyone who does not have that problem. So we're not going to solve that today at this And I get that. But I hope that we will have that comprehensive discussion and make sure we're answering all those questions so we can make the right decisions for California, which I know both of you are committed to doing.
Thank you for being here. Thank you.
Speaker 11
being my first presence in the insurance committee, ask my staff, okay, are we getting eased into in my first committee? She said, Yes, there's two bills. I was like, Great! And she's like, Well, one of them is 22 bills in one. So, I have a lot of questions, so I'll be concise with them.
I'll start with the first one. Ma'am, you talked about a survey. I'm wondering in this survey, people were asked if they're okay with paying higher premiums if more coverage is given.
Speaker 6
That's a great question. This was a recovery survey, so it wasn't it was specifically aimed at people who lost a home or had their home damaged. How's it going? We have a separate survey, a California Home Insurance Survey, where we have been monitoring for years because we are also we have a separate work stream aimed at restoring more options and addressing the reasons why insurers have pulled back in some areas, and where we are asking people what are you paying now, what were you paying. But we have not tried to, you know, put a price tag on what these provisions would cost, partially because some of the ones that we're suggesting, though, that we support the most, which is the offer of a 50% extended replacement cost, that's optional.
Speaker 8
Right? We're not forcing that on people. And and I think as, Senator Richardson pointed out, the because these this bill really only gets triggered in the event of a total loss in a declared disaster wildfire. They're not they're not going to affect they're not insurers are not gonna have I mean, even with, you know, 18,000 homes that went down in Paradise and 16,000 here, that's still only a fraction of the total number of insured homes. So it's still not should not cost the insurers the kind of significant
Speaker 11
But it's dollars still at a higher average compared to other We are dramatically increasing with disasters, I will say that.
Speaker 8
We are, but also our insurance rates are nowhere near the top Okay. Across the country, which is you sort of that's part of the reason why insurers have been have been putting hitting pause in some areas is that they feel like they need their rate they need to charge more. Need to approve of charge more.
Speaker 7
Staying on the conversation of premiums to the opposition, if higher premiums are needed in my short three months of learning about insurance here, I've come to learn that it's a slow process to get approval on rate increases. How would you then be able maybe this is two part with the commission or two be able then to increase to get higher rates to address if this bill, whatever part of it moves forward, you need to increase your rates. How much time would you get to be able to increase that to offset potential costs?
Speaker 10
Okay. So, if I understand the question correctly, how much time would we need
Speaker 11
to Would you be able to get those premium rates in time to implement some of these things?
Speaker 10
I guess, I assume the effective date of the bill would be 01/01/2027, is that correct? And it would pass in, what, September? So, historically, no, we have not gotten rate approvals in three months, and we're closer to a year, depending on the line of insurance.
Speaker 7
Yeah, no. Well, I don't I think I mean, I think it's a bit disingenuous because, under my administration, we've actually cut that down. And for those that have filed under the Sustainable Insurance Strategy, every single rate file has been done in record time. And I'm actually also working on a regulation that's going to require that all the rate files meet the actual that meet the standard within that was set under Prop 103 that says one hundred and twenty days. So, I'm trying to put everything in law to go back to where the initial intent went.
Back in the day, it took years, absolutely, but they cannot say that that has been the case under my administration, which is why I've gotten so much heat.
Speaker 11
The opposition mentioned 15% to 25% premium increases on average. I'd like the author of, you know, in these conversations, what you're taking, what you're hearing both, is that something the commissioner would approve a fifteen percent and twenty five percent increase? That seems a lot. And Senator, what are we thinking about this affordability piece?
Speaker 1
Mr. Vice Chairman and Senator, thank you for the question, and thanks for the lively dialogue. I'm enjoying the heck out of this. Good to be a spectator as an author as much as the author. Look, broadly speaking, Senator, the cost is always front of mind, right, because that directly relates to accessibility and solvency.
So if you don't address cost broadly in the insurance industry, and underwriting and assessing costs, making sure that cost estimates align with product that's available for consumers to purchase, and that they're able to actually capitalize that and pay out claims, then the whole system falls apart. And we want to talk about cost when people are underinsured or they can't sustain themselves in a time of extreme financial loss. Society as a whole and rate payers as a actually pay more. So cost is always in the eye of the beholder, but on the surface I will say as I we're engaging in a respectful dialogue with our folks whose job it is to represent the industry, it's important as you all know, Senator, remember that there'll be a lot of calculations, numbers, data put forward in the legislative process that are asserted, some of which have some validity, some of which it always turns out don't. So, as I said in my when I presented the bill, I think you have to remember that this bill is operating in the context of a very complex changing shifting market to the commissioner's points about the nature of the market today versus twenty, thirty years ago when 1988 when Prop 103 went on the ballot.
That said, the bill primarily focuses on circumstances affecting loss in a disaster scenario and the unique dynamics that are occurring in that situation, and making sure that there is a modern responsiveness and transparency to the policyholder, and that there is product available as an option to policyholders, either as an administrative extension on an existing indemnity, or as an opportunity to have access to product that will help make them whole in a crisis. So it's a very market driven framework that looks at some of these circumstances. I know there's going to be objections and assertions about cost on some of the penalties and provisions and oversight, on some of the timelines. People will always have different opinions about whether you can actually comply with an administrative regulation that says you have to pay out in a certain number of days, or you have to respond with a certain amount of documents. But at the end of the day, I think the broad intent here is to bring the claims process for people who are suffering the worst experience of their lives into the twenty first century.
But to your question, Senator Cost is always front of mind for me. I think it is for the department. I think it is for the industry because there are adverse impacts to all of us if we don't carefully be certain about what those impacts will be when we look at changes in legislation or rule making. So, yes, absolutely.
Speaker 11
I definitely would be interested if the poll exists somewhere around consumer willing to pay if they can recover. I think that would be great. I have so many questions, Commissioner, so I've to move on to the next one. Opposition. Under the additional living expenses, one of the provisions regarding the fair rental value in lieu, on average, are policy holders submitting receipts that end up totaling the total max?
And if that's always happening, what's the problem with just paying out the total max?
Speaker 12
Mean, so, Seren Taylor for the Personal Insurance Federation. I mean, I have to be honest, I do not have data on Okay. You know, are they submitting the max? We could, I suppose, try to I don't know if you have specific information on
Speaker 11
Because I'm wondering if it's a total loss. I can imagine most of them are claiming the total in MAX. So, that's already happening, doesn't that help reduce the burdensome in terms of administrative? I would just like, if there's a discrepancy where like we're only 12% of people, and now we're going to 100% pay everyone, I would understand that, but if
Speaker 10
I would just say on the additional living expense piece, you know, we met with a few of our companies right after the L. A. Fires, and they were helping place some of their customers in Airbnbs, hotels, apartments, you name it. And they were very concerned that we were seeing price increases in that market of, you know, 100 more than pre FIRE, 200 I mean, you've
Speaker 3
price gouging. And there was a lot of concern from some of my member that, you know, the policy limits might traditionally cover, you know, maybe eighteen months of rent, which again, in a normal loss situation where maybe you're the only house on the block, you know, that's sufficient. In a total loss situation like we're seeing and when you have price gouging like we saw, they were concerned that they were going to be they would have policyholders running out of ALE, you know, maybe in nine months. And so I think the part of the proposal that talks, I think we could get behind giving people the option to purchase additional ALE coverage, but I think what we have a concern with is for mandating people who may not be in high welfare risk areas and never find themselves part of an extreme disaster like this where they're going to need that much It
Speaker 11
sounds like there's still conversations on that specific provision. Great. All right. The fifteen day grace period under still ALE, it may be just for my education. That provision exists because is there a current time limit that the clock starts ticking once a disaster occurs as to why we need a fifteen day grace period?
Speaker 15
Hi, Tony Tony Segnorelli, Deputy Commissioner of Consumer Services, Department of Insurance. To answer the question, currently, there's no time limit as to when an insurance company terminates your additional living expenses. So while most companies will give you, informally, a grace period, they'll say, Okay, we've repaired your home. Your home is rebuilt, so in so many days or so many weeks, we're going to terminate it to give you time to get movers, stuff out of storage, etcetera, etcetera. There are a few companies that say, We've remediated your home.
We've repaired your home today. We're terminating your additional living expense today. So what we've been asked by the survivor groups in this fire and in past fires is, can't there be some kind of a grace period? So, once the home is ready to move in, the homeowner has the ability to hire movers, get stuff out of storage, make arrangements, rather than being immediately cut off.
Speaker 10
Yeah, so we have thoughts. I would say our quibble with that is the term habitable? Habitable? I'm not sure of the correct pronunciation. But that is the subject discussion right now.
I mean, Amy, you're part of the Smoke Claims Task Force. There's a lot of discussion right now in California about when a home is deemed, you know, clean or habitable to And so I think our concern is about putting that exact term. I don't think it's necessarily a concern with the fifteen day grace period. A concern with what may still be an uncertain ongoing situation between a policyholder and an insurer that that could introduce a wrinkle. Okay.
Speaker 11
This one that says when an adjuster gives word, you know, versus in paper, that seems like a good provision. You know, I want my what's promised to me on paper versus on word. Quorums with that one?
Speaker 12
We're certainly digging deep into the elements of the bill, and certainly, some of these are not as we've gone through and tiered, what are the primary things
Speaker 9
But I will say well, no, mean, I will say, generally, with regard to that issue, the claims adjusters issue, I think what we've been trying to say is we recognize that certainly there are a lot of concerns and issues out there, and we're happy to work with the author and the commissioner on how can we have a better customer service experience here, tighten some of these things up where appropriate, you know, looking at the timelines, looking at what the communication process is. I think that's an important part of this discussion, and we certainly don't object to having reasonable conversations about that. Great.
Speaker 11
Under the building code provisions, I think I heard this in L. A. Where building codes were changed, and because of that, they had increase, because now you can't do this, you're by a coast. It's not the fault of the insurer that a city comes and then changes the building code. I do think it's it should be upon the insurer to cover that.
How
Speaker 12
yeah. So, yeah, a couple of things on that. So, I mean, now, there is a certain amount of minimum building code upgrade that's in the policy.
Speaker 12
That's right the minimum. You can, right now, today, buy more. You have the option to add more if you want. This bill wants to propose to boost that up to 20%. Again, I think it's to the commissioner's point, having a transparent conversation that that's going to cost some more.
And then the bill gets into other, what we sort of started to call stacking provisions, where it says, Well, you may you can take that building code upgrade and buy a house in another location, or maybe you don't need the building code upgrade, but you can add that to your price you pay and consider it part of your total coverage, right? And so, this is where you start there's multiple pieces to even each provision in here, each proposal, and then those things start to add up to more and more, again, more premium hit, more cost.
Speaker 11
But the insured would pay the higher premium to cover those costs, right?
Speaker 12
Well, they there's one piece, is pay a higher premium if you want a 20% building code upgrade. And then, there's a second thing which says, Well, I'm not even going to rebuild at my current location. I'm going to go to another location, and now and it also and then, you have to apply it there where you not need it. You may not incur that cost. Like a big part of insurance is covering people for cost they actually incur.
And this gets away really philosophically from that core concept now to say, well, really, you know, you're just buying benefits, and you can stack them and use them in multiple ways, and that has
Speaker 11
Some of us have anxiety, so we want to make sure we cover things. I mean, because that's hard. That's not real life, right? Some people do cover things that they don't anticipate happening, but that one, I that's a little hard to take at face But I'm wondering where we got to 20%. Is that because we saw an average of that's what was the increase of building codes increases?
Speaker 15
Well, yeah, what we're seeing is, even with the 10%, and even recently in these fires from last year, we're seeing people are going over I mean, building code upgrade expense is higher than the 10% they're being allowed under the policy, so they are still paying out of pocket. And so, the goal of that particular provision is to trigger after declared disaster to from 10% to 20%, thereby giving a greater ability to be less ability of having underinsured for the building code upgrades you're required to do when you rebuild.
Speaker 1
Senator, you're Senator, what we're saying is circumstantially that there's going to be a new delta between what is going to be demanded of you or required of you to recapture what you've lost or build a portion of what you lost when you're in a declared disaster scenario than you are in a traditional circumstance. So there needs to be an additional ability to be covered to that extent because of that particular circumstance. Okay.
Speaker 12
Yes. I just wanted you to understand, because the other element of this is, it says it can happen in another location, and it could be years after the fact. So, when an insurer is trying to price that building code upgrade, it is now saying, And that building code upgrade could not exist today. It's something that's going happen three, four, five years down the line in a different location. So, how do you, as an insurer, know how to price that?
So, that's one of the concerns.
Speaker 15
Yeah, the bill doesn't do what he So, just we can clarify that at some point.
Speaker 11
Okay. Opposition. To the opposition, there's a lot of provisions asking for shorter timelines, payout. Even the author talked briefly brought this up. In real life, how can you accomplish this and payout within the days that are being asked for in the bill?
Under the emergency only, yes.
Speaker 10
So imagine, if you will, that you work in an insurance company. There's a massive disaster. You don't have the amount of claims adjusters in the state that, you know, you're that you need in a situation like this. You don't you just don't keep those amount of people, you know, stationed here in California. So, you fly people in from around the country.
So, I think insurers try really hard to settle things as quickly as possible. We set up what are called insurance villages, usually in partnership with the Department of Insurance in a given state. And it's exactly what it sounds like. It's a Home Depot parking lot. You have a bunch of insurance tents, essentially and you go up to your insurance company's tent and say, you know, this is here's my information, etcetera.
And you're getting checks right then and there. That is how it that's how it happens post disaster. Now, it's obviously a much lengthier process once you start to get into the rebuild, and, you know, so I want to be responsive. I'm just, you know, what insurers do, and in order to meet these timelines, they'd have to bring in more teams, and
Speaker 11
they They have would bring in more teams to be able to meet that. Do you think that's an accurate
Speaker 7
during the actual like, the immediate post disaster. The problems occur after the disaster when those adjusters leave the state. They go back and then they send their file or another adjuster gets involved, and then the claimant has to start all over. The process starts all over for them. And so, what they're thinking is, Wait, what happened to the adjuster that I was just working with, you know, for a month, for three weeks?
They have to start the process all over. And that is the most frustrating, I can tell you.
Speaker 11
That's the one provision that's like, Within five days, have they get an update? Correct.
Speaker 7
They get an update. And they're like, Wait, do you have a file? No, the other adjuster didn't give me any documentation. And Amy is the expert at this, because this is one of the number one issues that we hear, and it's heartbreaking.
Speaker 8
Well, I just want to add that what we have been told that at this point, where we're about fourteen months after the fires, fifteen months, that most of the insurers really hardly have any adjusters on the ground anymore at all. I think I've been told that Allstate has like one or two. So that's, you know, this is getting at the frustration
Speaker 11
Two last questions I have. There's the section on the increased penalties for claim violations. Are those claim violations on a consumer that submits an ill intent claim or There
Speaker 15
are claims violations that the insurance company violates during the handling of the claim.
Speaker 15
Currently, it would be the same as under current law, the commissioner currently has authority to penalize the insurance company, and it goes into the general fund.
Speaker 15
They occur on a regular basis, you know, in the thousands per year in total, and then the insurance commissioner takes action on a number of them as they reach certain thresholds and penalizes insurance companies.
Speaker 1
Okay. I think it's also important to note that The proposed language deals with where we place liability, what circumstances will bring liability, and then enhancing the authority of the Commissioner under an existing statute to bring additional penalty, including order and restitution on a greater scale. This gets to enforceability and frankly, disincentive.
Speaker 11
Okay. My last question is under the personal property one, and I had a little trouble understanding this. But, Commissioner, maybe like my second year here, you briefed senators and stuff, and I remember you showed us this graph, how dire the situation was for policy companies. And we needed to help them out. They need to be made whole.
And this personal property provision is asking to require payment of full 100% policy limits for personal property. Is that because they have coverage for that, or how would the how would insurance pay 100%, or
Speaker 15
Yeah, when you have your let's say you have let's talk big numbers. You have your million dollar policy. Let's say have an insurance company, we'll generally give you, let's say, 50% of that as your personal property. So you may have $500,000
Speaker 15
paid for. Because I paid a premium for $500,000 or whatever the number. It could be $100,000 whatever that number is. And so what this bill does is, after a total loss after a declared disaster, it requires the insurance company if you have a total loss and the home was furnished, the insurance company to pay that full amount.
Speaker 15
No, you no. The $50,000,000 let's call it a million dollars is your home limit, an insurance company, but may give you 50% of that for your personal property. So let's say it's $500,000 So you have your limit for personal property is $500,000 in this example. When you have a total loss, this bill requires you to get the $500,000 that you pay to
Speaker 11
pay Because they're only giving, like, dollars 250,000 is what you're saying, half
Speaker 8
they have to do this itemized inventory that Senator Becker's friend complained about that you probably have heard a lot
Speaker 8
Of this, you know, contents of the medicine cabinet, ridiculous, just to get what arguably you paid for.
Speaker 11
Yeah. Now if all the I forgot the number that is how many homes were destroyed just in the L. A. Fires. So, if everyone gets 100%, is there the funding for all of that?
Speaker 12
I mean, again, and I'm going to talk with Mr. Signorelli later about what their bill says about the building code thing, but the issue here, again, is they're not paying for the full 100% that's in there. Insurers are targeting a range. You might get a 50 of, like he's describing, how your limit is calculated, but it's not an assumption that you're always going to get your limit on every claim. And so, generally, most people actually don't have anywhere near the amount of personal property that their personal property coverage limit covers.
So, you get it as a it's like a calculation of a percentage based off your total dwelling coverage number. So, it's not necessarily a direct correlation to the amount of personal property you have, and that's what's baked into the numbers is an assumption that you're around this average amount. It does not your premium does not assume that you're getting 100% payout on your personal property coverage. So, if everyone starts getting that, then that, again, is a very different thing. That becomes almost like a different like what we call a parametric product.
It's not even now an incurred loss, so.
Speaker 10
Okay, if I may, I would also add, I mean, is a policy limit that you're supposed to be paid for losses that you actually incur, right? So, if you have a million dollar policy, you utilize Tony's example, coverage A, you have a million dollars in dwelling coverage, what's called coverage C, which is your contents. When you sign up with your company, they estimate. They go, okay, you have a million dollar home. We're going to assume that you have somewhere in the neighborhood of $500,000 $600,000 in personal belongings, your couches, your clothing, etc.
But we don't know. We're not forcing you to do an inventory when you sign up, you know, but we're going to that's the upper level. But we're going to price this based on all of the actual I'm not an actuary, but all of the actuarial losses for years past, how much what percentage are people claiming for personal contents following disaster. And we're going to price that accordingly. Under this bill it would require that whether or not you've lost $500,000 worth of personal belongings inside your home you get a check for $500,000 and you don't have to provide an inventory, anything.
And so the fact is if you have $200,000 worth of belongings under current law you get 60% of your contents coverage. So in that example you get $300,000 But you can still do an inventory for the remaining amount if you have really expensive couches or something. And so the concern here is that you would require insurers to either pay out for losses that you may or may not incur, or they're going to they may change the way that they underwrite this, right? It may be now that when you apply for insurance, they say, Okay, can you, where are you shopping for your furniture? Where, etcetera.
And then, you know, to Senator Richardson's point, it would then be something that you'd need to update yearly with your insurer, right? Okay, I just got a, you know, I replaced my IKEA couch with a restoration hardware couch. And so I think there's some concern about the not only the cost, but also how this would impact policy holders.
Speaker 11
I appreciate the indulgence from the Vice Chair on this. I'm hoping as more bills come, I'll be more knowledgeable in this space, but thank you for answering my questions.
Speaker 3
The indulgence was worth it on my behalf because I think you asked a lot of very good questions and some questions that I had also. But additionally, Commissioner, you mentioned the issue of optional coverage, but you didn't say what when you said it, it sounded to me like every enhancement here was optional that the customer would ask for and then the policy would be priced accordingly. As the conversation went on, I don't think that's what you meant. So what in the bill, what coverage is optional for the insured to select and therefore pay an appropriately higher premium?
Speaker 8
Yeah, there are several components, obviously. The 50% of extended replacement costs with premium attached to it, that would be optional. That's an offer. It's a mandate to offer that coverage. There the only two remaining after guaranteed replacement cost was removed from the bill that would be automatic triggers would be the 50 the second 50% extended replacement cost that triggers after a declared disaster for total losses in those unique situations, and the trigger of additional limiting expense from what you have for your limits, which are based on a nondisaster, to 100% of that for to handle a disaster.
Speaker 15
The additional the 100% increase of additional living expenses, that piece. And actually, a third piece would be from the 10% building code upgrade coverage for a declared disaster, it went to 20%. Those are the three that would be automatic triggers. The rest that are available for making offers would be, again, offers, and the consumer will make a choice.
Speaker 3
And with regard to the optional 50% contents coverage, that's what was being discussed previously, that the insurance company could offer to the insured the ability to have 50% of the building insurance, 50% of that covered for contents, and they would pay an additional amount for that amount of coverage. Is that what you're saying, or am I misunderstanding it?
Speaker 15
No. Not Then explain it better. I didn't really quite get the scenario. I think you got it.
Speaker 8
I can help. I think so the contents piece is we're just looking to relieve people of that burden of having to itemize every single thing because it reopens the trauma, right? So that piece doesn't mandate an increase in the coverage. It just mandates that the benefits be provided more automatically, right? And is that that
Speaker 3
Yeah. Okay. I get that. But I was talking about offering of coverage that the bill allows the insurance company to offer at the customer's choice and pay a higher premium for. Yeah.
What's that? Yeah. What are those components?
Speaker 15
Yeah. It's the 50% extended replacement cost offer. 50% what? Extended replacement cost offer.
Speaker 15
most about 50 about 40% of insurance companies already offer at least 50% of extended replacement costs. So if you have a million dollar policy, using big numbers, you're allowed to purchase if you want to pay the premium 50% or higher of additional coverage over that threshold.
Speaker 15
Well, no, it's mostly dwelling. There are a few companies that do offer it across the board for all
Speaker 3
the different covers. Right. And that's offered optional at an additional coverage. Correct. And with regard to the contents that we talked about, as was explained, and by the way, as I've always understood, that these are formulaic offerings.
Speaker 3
Building is worth $1,000,000 and they look at past experience and typical contents claims of $1,000,000 building is going to be maybe $300,000 So they offer you a maximum of $500,000 sort of just in case. But it's assumed that most of the claims are going to be closer to the $300,000 so if you require the half 1,000,000 on every one, you just increase their cost by almost 50%.
Speaker 8
I think it is fair to assume that many insurers will start to reduce the amount of contents coverage that they offer if this were to go through as drafted. I think that's a to be honest, I think that's I well, you just Well, said
Speaker 8
happen you is just said people don't need all that, right? You said you guys said most people have nowhere near their contents limits, and I don't know that to be true. I think this is a data point that could easily be
Speaker 3
I can tell you it probably is true. I've had a house fire and my contents coverage was nowhere. The contents that I had and paid for and was satisfied with was nowhere near the maximum.
Speaker 8
Okay. Okay. Well, just if it wasn't yours was not a total loss, correct? This wouldn't even
Speaker 8
total Yeah. This is really just contemplating everything you owned is gone. Right. And of course, survivors think logically, well, if everything's gone, and I paid X for Y dollars, why aren't Y dollars being you get it. I know.
Speaker 3
I knew what the deal was. Right. I'm just an average insurance consumer. So I think rather than insurance customers buying less coverage, the insurance companies are going to be more proactive of that, and they're going to adjust their premiums as a result. So and that's part of my concern about this is you mentioned, Commissioner, that this is about recovery, not about rates, that the sustainable insurance strategy is a long term strategy, and this is sort of covers just after a disaster.
Speaker 1
And in my opinion, I don't see how you can separate those two because I thought your sustainable insurance strategy was a good start relative to the crisis we were experiencing, and that crisis was driven by disasters like this. So I thought that that was really part of the overall strategy is covering things like this. Now, in the meantime, we've seen various proposals to address, in particular, the Los Angeles disaster, and I would point out that most of the proposals that we've had for consumer friendly allowances were after the Southern California fires. I didn't see a lot of that movement with regard to the Santa Rosa disaster nor the Paradise disaster.
Speaker 3
I've always thought that that was interesting at the least. So that's why I thought that sustainable insurance strategy was a comprehensive approach that certainly needed some modifications, but not individual modifications for specific instances that was intended to be sort of all encompassing. So I don't see how you can separate it.
Speaker 7
All I would say, Vice Chair, is, look, you're absolutely right. The sustainable insurance strategy is really was trying to tackle not just the climate realities but long years of neglect, whether people want to believe it or not, and major reforms and modernizations that should have happened in the department. And that was a massive piece of that as well. This is really informed by, like I said, not just one set of fires in L. A, but all the different 120, you know, catastrophic fires and really brings into play all the issues.
Are some of these issues that we're still trying to formulate and work with the industry? Absolutely. And we're trying to really look at, you know, some of these particular issues. But a lot of these folks and as Senator Mengevar brought to my attention, when we were specifically at one of the fires, I believe it was in Sonora, California, where the gentleman and these are, you know, kind of anecdotal said, I know where I live. I just need to know how much I need to pay so that I can better budget for my family and I.
What I don't want is the fear of having to lose my insurance every year. And so people understand where they live. They just need that certainty and they need the protection, especially after these cataclysmic fires. And that's what we're trying to narrow it. And so through the process, I think you're going to see a very different product as we're trying to get to, you know, assess all these different issues.
But that's what we're trying to do. And we know that some of these components are going to ultimately affect the rates, this is why we're at least making sure that they're being offered and given that opportunity if they want to purchase the additional coverage.
Speaker 3
In some of the cases. I get that. With regard to the contents, by the way, Senator Allen had a bill of that last year and it was negotiated, and so now we come back and we ask for what he asked for in the first place. You know, I know we do that sometimes. You're not Senator Allen.
That was Senator Allen, but it's just the process seems a bit unfair that way that we have a proposal made in 2025 and parties get together in good faith, negotiate and settle on a different number that everybody can live with, and then in 2026, we come back with the same thing that was initially offered. That gives me significant pause. And related to that, these provisions are going to increase costs for insurance companies. I don't know. I have concerns about what that means with regard to availability excuse me, affordability, but also availability, because if they're going to have additional costs, they're going to have cause to ask for rate increases.
So how quickly are you going to be able to process the rate increases that they're probably going to request in order for the availability to stay? And where do you think how do you think the convener is going to facilitate or not that process?
Speaker 7
Well, Mr. Weister, as I said earlier, you know, we've thank you to the leadership of the legislature. We have hired the staff. We are, again, recommitting ourselves to make sure we're true to the letter of Prop 103 and getting us back to what is mandated by Prop 103 through the one hundred and twenty days. And if you look at all the different rates that we've approved under the SIS and, quite frankly, some other ones have done in that record time.
Now that's a game changer for us because we want to make sure that the industry understands that we're meeting that, right? But also now with the use of, one, the data reconciliation tools that we're able to use now we're now no longer apples and oranges that that's a big, big win for us, but also that we are now committing to this. And I'm going to do a reg. So when I'm gone, I want to make sure that the next person is also beholden to those rules, again, demonstrating that we can't go back to that. We can't go back to that old California where it takes years, but that and we're allowing them to use those new technologies.
They cannot say that that's not a big you know, a big modernization, but that the rates also have to reflect the risk, and they need to be true when they come to the department to make sure that those rates reflect What they need and have that honest conversation with our department. That is a whole separate entity that I'm not involved with. That is our legal actuaries, folks that do that, and then they bring that to me as the last, you know, sayer that and that's part of that. But we have an entire process that will look at it. And to them, it's just math.
There's no politics in that process. And so that's the expert process we have in California. And so I leave that to them. And then if the rate reflects if they're not discriminatory, if they're actuarially sound and if they reflect the risk, then, you know, the rate will be appropriate. And so that has been the longstanding process under Prop 103.
And with the intervenor reform that you're asking, you know, we're finally going to hold them to transparency and to account, which is the new regulation that I'm currently working on to finally make sure that they're not you know, that there's some guardrails to the work that they're doing. Again, something else that you know, my goal is to hold everybody accountable and making sure the entire process is transparent for everyone, including the department. This is why I'm doing the regulation to make sure that we hold ourselves to the one hundred and twenty days with the additional thirty, thirty days, which is what Prop 103 says. So I'm holding everybody accountable in the process.
Speaker 3
Well, that is going to be important. You've mentioned Prop 103 several times. That, Commissioner, is fundamentally the problem we're dealing with to begin with, but I digress. Yeah. I'm to not
Speaker 3
I and any attempt to reform Prophecy 103 is probably doomed to failure because of the resources that that unnamed convener happens to have. But that's kind of a different unrelated issue. I'm not gonna support this bill today. I can tell it's going to pass and you're gonna continue to work on it, but as it is, it's not acceptable to me, and I just wanna make that particular point clear, and Senator Rubio has an additional question or comment.
Speaker 6
Well, more a comment, and I heard you state right now about the 60% negotiation that we worked so hard on last year. And I agree with you. And that's one of the items that I discussed with the author about trying to see if we can focus on that because we were working really hard last year to come to an agreement. And so, don't disagree with you that we work so hard every year. And here we are.
The bill just passed in January, and we don't have a chance to let it work its way up, you know, when we have another regulation. And so, he did express his willingness to work on it. I don't want to sue for the author, but can you state yourself? That's one of the items that he's going be working on.
Speaker 1
Mr. Vice Chairman, members, Senator, thank you for engaging me in the conversation about the And
Speaker 3
perhaps this I don't there are any other comments, so perhaps this can be your close.
Speaker 1
I appreciate that time efficiency. I'm stretching up here. The Senator's question, yes, am committed to continuing to work with the broad coalition, with the industry, with consumer protection efforts, everyone as we discussed, to continue to tackle these issues in a way that brings benefit in our operational and avoid unintended consequences.
Speaker 3
I'll take the one that was more vocal. Senator Richardson moves. Please call the roll.
Speaker 2
Motion is due pass as amended to judiciary. Senator Spadilla? Aye. Padilla, aye. Nilo?
Speaker 2
Nilo, no. No. Becker? Aye. Becker, aye.
Jones? Mendivar? Aye. Mendivar, aye. Richardson?
Aye. Richardson, aye. Rubio?
Speaker 3
we'll hold that open. Okay. Oh, the bill is out. The one missing member will be adding on later and one bill on call to catch up votes on Senator Cabaldon's Senator. Oh, I will allow the chair to do his job.
Speaker 1
Alright. We'll go back to lifting the call with respect to file item number two, SB thirteen fifteen, Cabaldon.
Speaker 2
Motion is due passed to Transportation Committee. Senators Jones? Mendivar? Aye. Mendivar, aye.
Speaker 1
Alright. Thank you very much. Appreciate everyone's patience and engagement. The senate committee on insurance is adjourned.
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