“Father Knows Best” was a popular radio show in the post-war period, which developed into an even more popular television series starring actor Robert Young.
Young’s character, Jim Anderson, was an insurance executive – probably the only time the American mass media portrayed such a character in a positive light. Young later played a much more sympathetic role, a doctor who made house calls, in “Marcus Welby, MD.”
Insurance that protects us against liability claims and damages to our home, car or business is a necessity these days. Yet, consciously or unconsciously, we often refuse to pay for protection that we rarely use.
Politicians like to take advantage of this discontent by promising their voters that they will protect them from greedy insurers if they are elected.
In California, this attitude took shape in 1988: a ballot proposal supported by a self-proclaimed consumer protection group made the state insurance commissioner an elected official with new authority to regulate insurers.
The sponsoring group, Consumer Watchdog, has since received millions of dollars in “intervener fees” for intervening in insurance rate cases pending before the Department of Insurance, but claims to have saved Californians $6 billion in the process.
Since launching his campaign for the office of Insurance Commissioner in 2018, former Senator Ricardo Lara has faced sharp criticism from the consumer protection organization Consumer Watchdog, which denounced him as a tool of the insurance industry.
However, Lara is struggling with an unprecedented crisis in the California insurance market. The devastating wildfires that have ravaged California over the past half decade have caused many insurers to limit their exposure, with some even going so far as to leave the state altogether.
They said California’s insurance regulatory system makes it impossible to accurately estimate potential losses and adjust premiums accordingly.
Tens of thousands of policies were canceled or not renewed. Property owners were desperately looking for new coverage. Many turned to the state’s insurer of last resort, the FAIR program, which, however, offers only limited compensation for losses and high costs.
In addition, mortgage lenders require their borrowers to keep their property insured, and so the insurance crisis has contributed to the housing crisis in California.
Lara, supported by Governor Gavin Newsom, has proposed systematic changes to insurance pricing. He agreed with insurers that their rate proposals should be processed more quickly, that they should be allowed to factor potential losses from wildfires and other disasters into their rates, and that the cost of reinsurance – to spread the financial burden of losses – should be built into premiums.
“We don’t have the luxury of time,” Lara said in a press release last week as he announced the introduction of new rules to speed up tariff cases.
The consumer protection organisation is still on Lara’s heels and says: “We remain concerned that the new procedures announced by the Commissioner bypass public participation and that the tariffs will simply be approved.”
“The consumer protection agency will analyze this measure to determine whether it is illegal underground regulation or whether it otherwise violates Proposition 103 by excluding consumers from the process,” it said.
In her announcement last week, Lara anticipated this criticism, saying: “To be eligible for compensation, all intervenor groups involved in specific tariff filings must make a ‘substantial contribution’ to the tariff review process and must not duplicate the work of the department’s tariff review experts.”
Would the regulatory changes proposed by Lara likely make insurance coverage more expensive in fire-prone regions? Yes, but nothing is free and more expensive insurance coverage is better than no insurance at all.
At least Lara deserves credit for actually doing something about a serious crisis rather than passing the blame on to others – a contrast to the way California authorities are dealing with another crisis: homelessness.
