Insurance commissioner must act now to prevent crisis (Opinion)

We’ve run a family-owned, independent insurance agency for more than 50 years. Those of us in the insurance business know that when customers come to us for insurance what they’re looking to buy is security. In the California market today, providing that security has become increasingly difficult — and is poised to get much worse without action by our elected insurance commissioner.

Independent insurance agents serve consumers by learning their needs and then searching out policies that ensure those needs are met. In a healthy, competitive market, consumers are well served. Today in California, such a market does not exist. Consumers are left with fewer options, and thousands of small businesses like my family’s, are finding it increasingly difficult to serve them.

The California Department of Insurance had a moratorium for more than two years and did not review rating plans submitted by insurers grappling with rising inflation and claims costs. In December, the Department began reviewing rating plans and has now approved 11 plans. This is good news and helps keep California’s insurance market functioning, but more than 80 rating plans remain in the Department awaiting action. While they wait, insurance companies are operating under pre-pandemic, pre-inflation rate plans, paying out more in claims than the income they are taking in from premiums. Not surprisingly, insurance providers are pulling back from the California market.

As a result, California is on the brink of a coverage crisis that will severely limit consumers’ options or even prevent them from obtaining the security they seek.

Allstate paused new auto policy sales through independent insurance agents in California and dropped monthly payment options, requiring consumers to pay at least half their policy premiums up front.

Geico closed 38 local offices and stopped selling new auto policies through call centers. Progressive Insurance pulled back its advertising to limit new policies. Several carriers removed their companies from the software independent agents use to get new policy quotes.

The situation in the homeowners’ insurance market is much the same. Allstate recently told agents to pause offering new policies in California and others will likely follow suit.

This is a clear call to action for newly re-elected Insurance Commissioner Ricardo Lara. He has the opportunity to act on the backlog of rate plans so more companies will offer more policies in our state. Ultimately, it’s this competition among providers that will lead to varied options and better pricing for consumers.

Make no mistake: This is a California-only problem. Other states have approved new rating plans accounting for today’s reality of inflation, supply-chain delays and a spike in traffic fatalities and the severity of auto accidents. If this reality persists, insurance carriers will simply stop doing business in the only state in which they lose money on every product they sell.

The Insurance Commissioner has a constitutional responsibility to ensure that California has a healthy, robust and functioning insurance market by reviewing and approving rate plans that adequately reflect the cost of covering claims.

If that duty isn’t carried out, there are consequences. We’re already starting to experience them, and a full-blown market meltdown is looming. Insurance agencies — many of which are small, family-owned businesses — are feeling it now, as it takes longer and much more work to find new coverage for clients, if they can find it at all.

Inaction will lead to cascading economic effects: auto sales will plunge when buyers can’t find car insurance, lenders won’t issue mortgages to homebuyers who can’t insure their property, business loans will dry up. Consumers will be left frustrated and insecure.

We are on the cusp of a crisis. On behalf of consumers and Independent Insurance Agents, I urge the insurance commissioner to approve the rate plans needed for new policies.

Senator Ted Gaines (Ret.) was elected to represent the Board of Equalization’s First District. He is a leading taxpayer advocate, defender of Prop. 13, and is committed to providing trustworthy and transparent representation for nearly ten million constituents in 34 counties of northern, eastern, and southern California. Senator Gaines has also owned Gaines Insurance, an Independent Insurance Agency, for more than 30 years.