Yeah, probably simpler to increase rates by recent assessments (say, increase incurred losses by a factor calculated by last 5 years of total assessment compared to total losses). It is penalizing future policyholders by what happened in the past, but most of them will be the same people.
The theory is that by using a historical average you’re able to reaonably predict the future, not simply recouping funds. Technically if it was known assessments were now impossible, despite having paid some recently, you shouldn’t load anything… and vice versa.
I can’t wait to see where the consumer advocate says insurers should have expected to recover assessment costs from.
This is going to kill Lara’s relationship with insurers.
“Assessments” is not a “covered loss” . . . which I believe is the key language that will end up having no assessments being covered by a reinsurance contract.
And if the commissioner is going to refuse the recoupment of those assessments by spreading it across all CA consumers . . . I can only see that the voluntary market is going to shrink and disappear.
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I agree. I don’t blame Lara for the move because financially they have to, but this is just going to chase away the insurers even more.
Last assessment was in 1994 and IME you can’t really buy private quake insurance in CA because of silly CA regulations (unlike WA, OR). Easy to guess when the last big CA EQ was…
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There are reinsurance contracts that explicitly cover assessments in the event the covered loss breaches the layer. The language basically adjusts the subject loss to include the assessment dollars in a separate article somewhere.
eta: I cannot speak for CA assessments specifically.
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I’d be more concerned with the expectation, given how California rate approvals work, that the industry is expected to simply eat half of future billion-dollar assessments without the ability to consider that in their pricing.
If you look at it naïvely, a half-billion dollars spread out across the industry, once every 30 years isn’t that expensive (even after risk loading)…but it’s already torture at best to get adequate rates approved in the state. It’s another straw to put atop the camel.
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IFYP . . .
But the issue isn’t the spreading out over time so much as the immediate impact of the upfront payment of that assessment placing greater stress on their solvency metrics; especially for smaller insurers.
Fixed the typo. Thanks.
I agree that the potential hit to some insurers’ solvency is a concern…but realistically, that damage has been done. In theory, it’s a risk that insurers should have contemplated in evaluating their positions; those that didn’t / couldn’t are now paying the price.
I think the bigger problem, insurance-wise at-least, is that this is a known, theoretically quantifiable and manageable risk that insurers aren’t going to be allowed to price for.
Why the hell would any insurer want to write property in California on an admitted basis?
ITA.
And there have been “reasonable” commissioners in the past in CA. IMO, the biggest problem insurers face in CA is the laws governing pricing (extremely prescriptive) that tie the hands of their DOI personnel.
And part of that law is the authority granted to “interveners” that can hold up a rate change for “reasons” . . . which more often than not is a political ploy for someone to get “free money” for intervening. Case in point, I was pulled into a rate filing in CA when our main guy had to take emergency leave (wife died) in the middle of the filing for a rate decrease (-10%) that was intervened.
To clarify my post: It’s not the assessment itself that is going to be what damages the relationship; it’s the expectation/requirement that an insurer cannot recover the full amount of the assessment because the state of CA will not place the burden of insurance coverage upon the policyholders.
I distinctly remember from a past life, when I was part of the industry roadshow doing damage control against regulatory resistance to adoption of credit scoring, spending a day with the CDI.
That’s where I discovered that I liked some of the folks one encounters after you get a filing through intake. Great people, very reasonable…and also straight-shooting when it came to their hands being tied due to California’s regulation and political climate.
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Aye, statutory lobbying power is far more potent a tactic than sweet talking the DOI. Legislatures have their own…special issues as well however.
I’m guessing many of the big insurers film their commercials in California. It will become like tv shows - filmed there but set in a different state.
NPR has an article arguing againts more brush clearing
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Chat gpts summary may be just as long as the article, so first…
TL;DR:
Clearing large areas of chaparral around Los Angeles won’t reduce wildfire risk and could make it worse by allowing flammable invasive grasses to spread. Chaparral ecosystems are adapted to fire, but human-caused frequent fires are degrading them. Instead, experts recommend clearing vegetation within five feet of homes, using fire-resistant building materials, and creating targeted fuel breaks to help firefighters.
…and here’s the summary:
chat gpt summary
Summary: Why Clearing Brush Around Los Angeles Won’t Reduce Wildfire Danger
-
Chaparral Ecosystem is Unique and Fire-Adapted:
• Chaparral, a native plant community in Southern California, is adapted to withstand and recover from fires through resprouting and seed germination.
• Over the last century, human activity has caused fires to occur too frequently, preventing chaparral from regenerating and leading to ecosystem degradation. -
Clearing Chaparral Can Worsen Wildfire Risk:
• Removing large areas of chaparral allows invasive grasses to spread, which are even more flammable than native plants.
• Frequent burns from human-caused ignitions (e.g., power lines, fireworks) promote invasive species growth, increasing fire intensity. -
Chaparral Fires Differ from Forest Fires:
• Unlike forests, chaparral does not accumulate undergrowth that needs clearing. Prescribed burns, which are effective in forests, are not suitable for chaparral.
• Forest ecosystems benefit from controlled burns to clear debris, but chaparral landscapes suffer from excessive fire rather than a lack of it. -
Effective Fire Prevention Measures:
• Clearing vegetation within five feet of homes is more effective than large-scale brush removal.
• Using fire-resistant building materials and creating defensible spaces around structures are crucial for protecting communities.
• Strategically placed fuel breaks near neighborhoods can help firefighters slow down fires, but they should be limited and purposeful due to their ecological impact. -
Key Expert Perspective:
• Wildfire expert Alexandra Syphard emphasizes that “one-size-fits-all” approaches, such as broad vegetation clearing, can lead to unintended consequences.
• Restoration ecologist Joseph Algiers highlights that the primary problem is too many fires caused by human activity, not excessive vegetation.
In conclusion, wildfire safety strategies in Los Angeles should prioritize protecting homes and reducing human-caused ignitions rather than removing native chaparral, which can backfire and worsen fire risks.
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Seems like the suggested solution is to kick out the actual source(s) of the fire starting . . . those pesky invasive humans.
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I would recommend 20 feet. The open space behind me is cleared (by its utility company owner) a good 40 feet up a hill.
Oh, and prevent the wind from blowing too damn strongly. Someone else is in charge of that, though. Less rain, but more frequently, Seattle-style, would help. Today, we are getting about 4 inches in the Altadena foothills, where the fire was.
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Not anything terribly earth-shattering here, but the WSJ has a nice long article on the subject of insurers not having the appetite to cover properties being reconstructed after the LA fires.
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Lara has certainly changed his tune in his quote in the linked. Now he is supposedly struggling against prop 103.