Insurance Commissioner Candidates Share Plans For Industry

The average gap between the insurance payouts offered to Pacific Palisades residents who lost their homes in last year’s fire versus what it will cost them to rebuild shakes out to $603 per square foot, or $1.5 million in total, according to dozens of client case studies by AI startup ClaimArchitect.

That’s a gap that state insurance commissioner hopefuls are eager to fill, which is why Mike Furnari recently hosted a forum where candidates for the position laid out their visions for maintaining a healthy insurance market.

Furnari is one of ClaimArchitect’s founders, and he lost his own home in the Palisades fire – giving him two big reasons to push for a higher-than-usual public profile for an election that is not usually top of mind for voters or the media.

Whether or not the insurance commissioner’s race gets more attention, it will be influential in shaping the real estate industry’s market going forward.

Residential developers have a vested interest in homeowners’ future ability to secure coverage as they consider where to build, making the election for California’s next insurance commissioner one to pay close attention to. Bringing insurance companies back to the state will be key to solving what has been called a “statewide insurance crisis” and ensuring developers invest in California.

The March 27 forum, held at the Palisades Recovery Coalition, included talks of enhanced accountability, department modernization and risk reduction. The event drew in about 70 people, half of whom attended in person, while the other half tuned in via Zoom.

The lineup included two career politicians – state Sen. Ben Allen, a Democrat who represents California’s 24th District, and Steven Bradford, a Democrat who has served in both the state senate and assembly – and two outsiders to California politics, Merritt Farren and Patrick Wolff.

Farren, who recently registered as a Republican and lost his home in the Palisades fire, touted his business and legal experience, having worked in senior leadership positions at Amazon, Sony Pictures Entertainment and Disney. Wolff is a financial analyst and Democrat from Silicon Valley, who previously worked in corporate development at Capital One to establish the bank’s auto and home insurance brokerage.

The nearly two-and-a-half hour forum covered a lot of ground including California’s Fair Access to Insurance Requirements (FAIR) Plan, which is the state’s last-resort insurer. Funding for the FAIR Plan comes from insurance companies who write policies in the state.

Each candidate agreed that the number of FAIR Plan policyholders needs to be significantly reduced.

Pointing to models used by Florida and the United Kingdom, Farren proposed a plan he called “Cal Reinsure” to “eliminate the need for the FAIR Plan.” Under his plan, a state-backed reinsurance authority would shoulder the weight of one specific risk factor – i.e. community/urban fire – which would be required for every policy.

“If somebody’s house burns down… and they signed up for $1 million in coverage for their rebuild, they’ll get a check for $1 million, no questions asked,” he said.

In Farren’s view, this would encourage insurance companies who are wary of writing policy in high-risk areas to get back in the state.

Many seemed intrigued by Farren’s plan including other candidates, though Wolff made a distinction that this type of model would need to be federally funded rather than state funded due to California’s high cost of capital.

Improving the FAIR Plan starts with fixing the broader insurance market so more companies write policies here; and as a result, the FAIR Plan can get the proper funding to provide reasonable underwriting and rates that are “actuarially sound,” Wolff said.

“So long as we have a system where losses above a certain amount can be pushed onto policyholders who are not on the FAIR Plan, then (those) policyholders are subsidizing the losses of the FAIR Plan,” Wolff said. “That’s obviously backwards and keeps this system broken.”

One of Wolff’s ideas to get insurers back is restructuring the Department of Insurance’s “Safer from Wildfires” initiative, which gives homeowners a list of fire risk reduction efforts they can do to receive discounted rates. Rather than the state telling insurance companies what discounts they need to provide, Wolff said insurance companies should be telling the state what they need from homeowners.

While the media has largely focused on the Palisades and Altadena when it comes to homeowners insurance issues recently, many areas across the region face challenges. In Sonoma County in the North Bay, almost every home is considered high wildfire risk, the San Francisco Chronicle reported. Additionally, numerous ZIP codes within Marin, Napa, San Mateo and Santa Clara counties had the vast majority of their homes deemed high risk which impacts residents’ abilities to secure insurance.

The Insurance Institute for Business & Home Safety has reported that fireproofing efforts are most effective when done across neighborhoods. With this in mind, Wolff expressed interest in exploring group insurance policies to incentivize homeowners to fireproof their homes at the neighborhood level, creating opportunities for lower rates.

Allen – whose senate district includes the Palisades – agrees there needs to be greater input from insurance companies on what they need to feel comfortable writing policy in California. He also said he’s working on a bill to create a low-interest state-backed loan program for fireproofing homes.

“We can’t go out and demand the insurance industry cover all these high risk areas without us putting in the investment and really starting to shift focus on risk reduction,” Allen said.

Another aspect of getting insurance companies back in the state, according to Bradford, is modernizing the Department of Insurance to provide staff with the resources and technology they need to move faster, noting that rate approvals in California can take up to nine times longer than other states.

Bradford also said he supports Assembly Bill 226, which was signed into law last year and allows bonds to be issued for the FAIR Plan to provide more liquidity during major events like last year’s wildfires.

Ensuring that new construction is built with high fire safety standards is another important part of decreasing the state’s reliance on the FAIR Plan, Allen said.

Transparency was another topic of conversation. If elected, Farren said he’d set a new standard for how insurers write their policies, calling current contracts “a masterpiece of obfuscation.” Bradford argued for more transparency in the rate determination process, proposing mandatory explanations from insurance companies who increase rates.

“Rate increases should be based on risk, not on profits,” Bradford said.

Other candidates not present at the debate include former member of the San Francisco Board of Supervisors Jane Kim, Silicon Valley business owner Robert Howell, licensed insurer Stacy Korsgaden and Eduardo Vargas, a teacher and community organizer.