The state insurance commissioner’s office is not generally a hot topic, nor is it something most people realize exists until they see it on their election ballot. But in the wake of multibillion-dollar losses in the state from near-yearly wildfire disasters, the commissioner’s job has become much more important. Candidates seeking to be the next commissioner took direct aim at insurance companies at a recent forum in San Francisco, and though their proposed solutions differed, the message to the insurance companies was fairly similar: No more Mr. Nice Guy.
To address insurance companies raising rates, reducing or denying coverage and claims, and leaving the state altogether, the candidates offered ideas ranging from regulatory changes to a single-payer public insurance system.
Moderated by Nancy Tung, chair of the San Francisco Democratic Party, the forum at the Commonwealth Club World Affairs included four Democrats, along with one Republican and a Peace and Freedom Party candidate. The Democrats included State Senator Ben Allen of Santa Monica, former State Senator Steven Bradford of Los Angeles, former San Francisco Supervisor Jane Kim, and financial analyst Patrick Wolff of San Francisco. In addition, there was media and technology executive Merritt Farren of the Los Angeles area, who is running as a Republican; and Los Angeles environmental science teacher Lalo Vargas, a candidate on the Vote Socialist California slate of the Peace and Freedom Party.
Farren, who had joined the race shortly before the forum, noted that he, his husband, and their two children were survivors of the Palisades fire, in which they and almost all of their neighbors lost their homes. He cited planning failures that, for example, resulted in fire hydrants without water, but the post-disaster challenge “was insurance,” he said. “For many, that was and remains as traumatic an experience as the fire itself. They expected they would have coverage. They found they either had no coverage — I know people who literally had not realized that their coverage had been canceled and had no coverage, and others are still fighting with their insurance companies to try and get the money to rebuild. Those who do have decent coverage are finding that it’s incredibly difficult to get a full understanding of what the [payout] will be.”
Progressive Democratic candidate Kim looked to cap excessive profits and CEO pay, and “to build a nonprofit single-payer natural disaster for-all insurance program for all of California.” Vargas took the public angle and ran with it, highlighting the disastrous impacts of climate change and calling for fossil fuel companies to pay for the damages. He also called for freezing rate increases, investigating the largest insurers, and guaranteeing “fair, free, and full coverage for all Californians.”
“I’m a socialist, so I’m running for a system that puts profits before people, but reinsurance is really a socialist solution for the corporations.”
Vargas called for a public insurer “that covers everything, not just natural disasters, but that also covers auto, that has single-payer health care for everyone.” He said creating a public insurer requires “abolishing the insurance companies, seizing their assets, using those assets to fund a public insurance system in the state of California that is actually going to put people before profits.”
A more moderate approach was expressed by Wolff, who stressed his experiences working for banks and as a financial analyst, arguing that today’s problems are “a failure of regulation.”
Farren called for ditching the state’s FAIR Plan, which is the state’s “insurer of last resort” that has grown dramatically in usage in recent years as some major insurers have exited the state and others have limited new policy writing — a situation that feeds on itself. “FAIR Plan’s makeup is that the insurance companies who are admitted in California are obligated to participate in the FAIR Plan, and [if] the FAIR Plan has a cash shortage they’re obligated to kick money in,” Farren said. “The problem with that is that the [amount] they have to kick in [is] based upon the number of policies they write in the state. So the FAIR Plan is creating an incentive for insurance companies to not renew policies, to drop people, and to leave the state.”
Many of the other candidates also offered harsh criticism of the FAIR Plan, making it about as unpopular at the forum as current Commissioner Ricardo Lara. Wolff laid the blame on Lara for allowing State Farm to “hive off” its exposure in the state from the parent national company. “Well, the market gets sicker and sicker, fewer and fewer insurance companies, the FAIR Plan exploding, the terrible fires happen. And then State Farm suddenly is upside down financially. That . . . because the Department of Insurance under Ricardo Lara did not make the parent company responsible for the losses of State Farm.”
Allen piled on, blaming Lara for “a market failure that the Department of Insurance was responsible for overseeing and needed to correct.”
Bradford said that the FAIR Plan has increased by 230 percent in the past four years. It wasn’t designed to be so big, and he supported Assemblywoman Lisa Calderon’s bill last year that helped undergird the FAIR Plan by selling bonds to finance the risks.
Kim said “we’ve heard it a bunch of times on this stage that the private market is going to take care of us in the insurance industry. I fundamentally disagree with that statement, because what we have right now, the way insurers work is they take our premiums and they invest it on the stock and bond market. That’s how they’ve been making billions of dollars in the last three years.” She said that in her proposed public model, “we would collectively reduce our risk by actually investing our premiums and the returns from those premiums in resiliency, in infrastructure that actually makes us more fireproof and flood proof.”
Allen warned about a full public model putting at risk “all the public services.” He warned that a really big fire or earthquake “would literally bankrupt the state. As a progressive Democrat who cares about all of the public services that we provide for schools and hospitals and health care and home services, that worries me if we don’t craft it really carefully.”
The system of reinsurance, in which insurance companies themselves are insured as a backstop against catastrophic payouts, was also discussed, either as a regulatory challenge or as an alternative public system. But Vargas, for one, was not impressed: “I’m a socialist … but reinsurance is really a socialist solution for the corporations.”
The primary election takes place on June 2. California will then learn whether voters are in the mood for a regulatory clampdown or a socialist takeover.