CALIFORNIA FOCUS
FOR RELEASE: FRIDAY, DECEMBER 1, 2023 OR THEREAFTER
BY THOMAS D. ELIAS
“WHAT
BLACKMAIL WON FOR INSURANCE COMPANIES”
Until a
consumer advocacy group used the Public Records Act to unearth previously
secret records, it was uncertain just what the insurance industry won when it
blackmailed millions of Californians last summer and fall.
Now it’s
clear the companies won immense new freedoms from longstanding regulations that
have saved California insurance customers billions of dollars since 1988, when
voters passed Proposition 103 – and despite this, some firms are still not back
in the market here.
Here’s
how the blackmail worked: Companies like State Farm, Allstate and Farmers
stopped selling new property policies anywhere in California, claiming
intolerable losses from wildfires. They neither specified how much they lost
nor mentioned the $13 billion they clawed from electric companies to compensate
for most of their wildfire payouts of the last six years.
But they
loudly insisted they would never again sell homeowners coverage or other
property insurance here without relief. The tactic met the dictionary
definition of extortion, one form of blackmail: “The act of getting something from someone through violence,
threats, or other forms of coercion.”
There was no violence here, but plenty of threats and
coercion.
To its credit, the state Legislature rejected a bill that
would have knuckled under to the insurance companies.
But elected Democratic Insurance Commissioner Ricardo Lara quickly reacted by doing just that in the form
of new, eased regulations. He gave the industry what it wanted, but did not
immediately reveal all the details.
Now the
Consumer Watchdog group, formerly the Foundation for Taxpayer and Consumer
Rights, main sponsor of Proposition 103, has uncovered what Lara gave away
under the guise of compromise.
Supposedly,
the companies committed to sell homeowner policies in wildfire areas up to 85
percent of their market share in non-threatened places. They could, Lara said,
meet that commitment by selling bare bones policies akin to those offered by
the hyper-expensive, last-resort Fair Plan.
But there
was a lot Lara did not say. For one thing, if his new regulations withstand
legal challenges, he and future commissioners could waive the 85 percent market
share commitment in wildfire areas when insurers claim they can’t do it.
This
information was found in emails and proposed legislative language given to
lawmakers and lobbyists by a deputy insurance commissioner.
It
contains no solid standard of proof for potential insurance company claims that
“it is not possible” to meet their commitments.
Plus,
insurers can reach their 85 percent level by pulling customers out of the Fair
Plan and giving them the same low-coverage, high-cost policies as the Fair
Plan, but possibly at even higher prices.
The
proposed new regulations did not say how the new industry commitments would be
enforced or monitored. So Lara and future commissioners would be accepting the
companies’ word for any claims they make. There is no stated penalty for
failure to meet commitments.
The new
rules also mimic what the Legislature rejected by allowing insurance companies
to set future rates via private predictions of future catastrophes, without
disclosing how predictions are reached.
Lara also
apparently gave away some key consumer protections in Proposition 103, even
though that may be illegal. One example: his plan authorizes insurance
companies to pass through to customers the unregulated cost of “reinsurance,”
policies the companies buy to protect against large losses. These would be
limited to “California-only risks,” even though no one has proven risks are
higher here than in other fire-prone states like Idaho, Oregon, Utah,
Washington, Texas and Arizona.
There
also would be no requirement to disclosure communications between insurance
companies and state regulators. Plus, there are new limits on public
participation in reviews of proposed new rates.
It all
amounts to a massive giveaway, unprecedented except in the prior insurance
industry blackmail of the 1990s that ended the companies’ obligation to sell
earthquake insurance in California.
All this
angers Democratic U.S. Rep. John Garamendi of Fairfield, who was the first
elected insurance commissioner. Lara’s plan, he said, threatens “protection of
consumers against unchecked corporate interests.”
No one
knows how much of this will pass legal muster, but one thing is certain: While
Lara denies surrendering, his almost total cave to the companies will cost
every property owner in California big bucks on future insurance bills.
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Email Thomas Elias at tdelias@aol.com. His book, "The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It," is now available in a soft cover fourth edition. For more Elias columns, visit www.californiafocus.net
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