State's newly elected commissioner seeks to tame costs, boost wildfire protections
By Jean Eaglesham and Laura J. Nelson
The midterm elections that swept Democrats into power in Congress on affordability concerns has also given rise to a bipartisan crop of lesser known, down-ballot politicians who wield enormous power: insurance commissioners.
Jane Kim, a Bernie Sanders-backed progressive who will take office next year as California's new insurance commissioner, wants the state to insure all homes against wildfire. In Georgia, voters elected a Democrat pledging to challenge unjustified rate increases. Oklahomans chose a Republican self-described "fighter who won't take orders from insurance lobbyists," and Kansas elected a Republican pledging to "hold companies accountable for skyrocketing rates."
Beyond these newly-elected officials, even more changes are in store in several states where the governor appoints the insurance commissioner, as politicians tap in to voter anger over sharp rises in home- and auto-insurance premiums that have exacerbated cost-of-living concerns.
"Affordability really won us this race," Kim, who defeated a better-funded Democratic opponent backed by the party, said in an interview.
Kim is the most powerful member of the new cohort, all of whom are promising to tip the balance of power in favor of consumers. A career politician with no previous industry experience, Kim will oversee America's biggest and most troubled insurance market -- making California ground zero for potentially sweeping policy changes that would likely put pressure on insurers.
Industry organizations warned of potential unintended damage to the market's nascent recovery. "Costly new mandates or regulatory actions that drive up costs or limit coverage options risk.worsening the crisis," said Denni Ritter, a vice president at the American Property Casualty Insurance Association.
Kim, the first woman and first Asian-American elected to the role, takes the helm at a critical time. After a yearslong crisis, exacerbated by last year's record-breaking Los Angeles County infernos, California's home-insurance sector appears to be on the brink of recovery.
The surging growth of the state's Fair Plan insurer of last resort, which sells fire-damage policies to homeowners who can't get coverage elsewhere, has slowed markedly. State Farm and Allstate this fall filed for approval to restart sales of new home-insurance policies, albeit on a very modest scale, after a pause of more than three years.
Ricardo Lara, California's current insurance commissioner, hailed the moves as a "clear signal" that the market is recovering. His tumultuous eight-year term illustrates the difficult balancing act awaiting his successor. A Democrat elected on pledges to help consumers, he capped rates aggressively during the pandemic, only to reverse course after home insurers pulled back en masse.
He eventually bowed to insurers' wish list, including double-digit rate increases, to rescue the market -- prompting blowback from consumer advocates and labor leaders now cheering on his successor.
"People elected Jane Kim to help clean up this s -- t," Kim Tavaglione, executive director of the San Francisco Labor Council, said at Kim's victory party. Tavaglione said the current system is failing Californians.
Kim during her campaign rejected Lara's strategy, saying "increasing prices to increase availability is a band-aid." The market might be more stable for insurers, but consumers are "getting squeezed," she said in the interview.
Her signature policy is ambitious: replace the Fair Plan with a multibillion-dollar state-run program to insure all homes for wildfire, removing the risk from private insurance policies. The slice of the $18 billion in California homeowners' premiums that goes toward covering wildfire risk -- which she estimated at $3 billion to $6 billion -- would be replaced by a state levy on homeowners that would be paid into the new pool. Money left over in the pool after paying claims would be used in part to better protect homes against fires, rather than paid out in profits, according to her proposal.
"A systematic failure requires a systematic solution," Kim said. She cited New Zealand's natural hazards insurance program as an example of a government-created pool funded by a levy on home-insurance policyholders.
Industry representatives questioned whether Kim could ever win the support of the state legislature and governor needed to turn her plan into a reality, particularly if it meant putting taxpayers on the hook for big losses in the event of another massive fire.
"I'm not saying it's impossible.but it's very difficult," said Rex Frazier, president of the Personal Insurance Federation of California, which represents insurers in the state.
Kim said she's open to "how we get there," adding that the specifics of the policy are less important than its goals, including ensuring fair rates.
One likely source of such funding: the industry. One of Kim's proposals is to impose caps on home- and auto-insurers' profits, with money above those thresholds paid back to the state or consumers.
"We're seeing shareholder payouts in the billions.State Farm has four private jets paid for by our premiums."
A spokesman for State Farm said, "Californians deserve insurance they can afford and confidence that it will be there when they need it most." State Farm General, its California home-insurance subsidiary, racked up a $5.9 billion underwriting loss over the past decade, paying an average of $1.25 in claims and expenses for every $1 of premium collected, he said. Addressing the losses, he said, "will require practical solutions that reduce risk and support a financially sustainable insurance market."
Kim's election agenda features other policies likely to worry insurers, such as a ban on hiking rates in response to certain claims and a requirement to get customers' consent before paring back coverage.
"We're not against companies making money from selling a product and service," she added. "We just don't think it should be extraordinary."