Newsom Seeks Faster Track for Home Insurance Rate Hikes as Market Shrinks

With wildfire risk and inflation making new homeowners insurance policies increasingly difficult to find in California, Gov. Gavin Newsom is pushing to fast-track new regulations that could speed up state reviews of requested rate hikes by insurers.

The rules Newsom requested by executive order last fall are part of a series of proposed changes from the California Department of Insurance that would go into effect at the end of this year. But speaking on Friday at a press conference, Newsom said he didn’t think that would be soon enough.

“December? I don’t think we have that much time,” Newsom said. “We need to move. We need to move.”

He plans to work with legislators on a trailer bill, to be attached to the state budget, that could go into effect July 1, enacting regulatory changes to streamline the information insurance companies have to provide to the state when they want to make a change to their rates, whether those are increases or decreases. The proposed changes covered by the trailer bill would also impose time limits on how long the insurance department has to approve or deny those requests.

Currently, this can take many months, even several years. It’s a major complaint from the insurance industry, which has seen a growing number of insurers pull out of California’s homeowners market in recent months. From their perspective, by the time a rate increase is approved, it’s already out of date. Newsom wants to see this take only two months at most.

“We need to get this rate ruling process done, and that’s why we want to expedite it over a 60-day period. We need to stabilize this market. We need to send the right signals,” he said.

Leaders of the state’s powerful Consumer Watchdog organization pushed back on Newsom’s proposal, saying it could become a “rubber stamp” for proposed rate increases.

Meanwhile, the insurance department will continue working on the rest of a suite of regulatory overhauls under what it is calling the Sustainable Insurance Strategy. This includes allowing insurers to use forward-looking models to set rates instead of just historical data; allowing some reinsurance costs — reinsurance is insurance for insurance companies — into customer rates; and requiring insurers to write a lot more coverage in risky parts of the state, with the goal of de-populating the teetering FAIR Plan, California’s insurer of last resort.

California’s Insurance Commissioner Ricardo Lara wrote on X, formerly Twitter, that he appreciated the governor’s support and agreed quick action was needed.

Jill Epstein, CEO of the Independent Insurance Agents and Brokers of California, said it was hard to know exactly what to think about the bill until details were released.

“Certainly, we would welcome anything that will expedite this process,” Epstein said. “It sounds great, and I hope it’s meaningful when it gets put in print.”

The announcement could be a major step toward assuaging the concerns of insurers operating in California.

“I’ve been watching this happen over the last three, four or five years. And we reached that tipping point, and we fell over it,” said Karl Susman, owner of Susman Insurance Agency. “And so now everyone is rushing to try and fix the problem that has been occurring slowly. So, on one hand, I’m shocked that they’re taking this as seriously as they, frankly, should have been for quite some time.”

On the other hand, he said, Newsom’s action on something that is already part of the Sustainable Insurance Strategy could signal to private insurance carriers that the state is serious about enacting changes. He said that may encourage them to start re-entering the insurance market sooner than the end of this year.

Already, in a recent insurance hearing, one major company said it would return to the state once reforms are enacted. “If the regulations were in effect today, we would begin selling new homeowner insurance policies tomorrow,” said Gerald Zimmerman, senior vice president of government relations for Allstate.

Still, the changes will not likely immediately relieve homeowners paying for insurance policies. “It’s still going to be a while,” Epstein said. “And when I say relief, let’s be clear that people’s premiums and the rates are going up. Everyone agrees that [will happen]. So when I say relief, I mean relief from a market that is so stressed.”

She pointed to the FAIR Plan, which is so over-committed and under-resourced it is nearing a breaking point.

“We need more options,” Epstein said. “The way it all works, the more options we have for our consumers, the more stable our market, the lower the prices will get. And that’s where we were for so many years. And we need to get back.”