Washington, D.C. – A package of homeowners insurance bills in Sacramento will lead to premium hikes of at least 40% across the state and increase the number of Californians who struggle to find coverage. In a letter to state legislative leaders, CFA’s Director of Insurance J. Robert Hunter – a nationally recognized actuary, former Federal Insurance Administrator, and former Insurance Commissioner of Texas – explained that the insurance industry-sponsored plan (AB 2167) to pass through the costs of reinsurance to consumers has been disastrous in other states that allow it and is one of the reasons home insurance is much more expensive in other catastrophe prone states. The bill is likely to be considered at a State Senate Insurance Committee hearing on August 4.
“I have no doubt that this provision of AB 2167 will drive up the average cost of insurance in California by hundreds of dollars per home and subject the state’s homeowners insurance market to additional spikes in price and non-renewals as it becomes tethered to unregulated and erratic global reinsurance markets,” Hunter, a Fellow in the Casualty Actuarial Society, wrote. “In my actuarial opinion, just the provision … allowing unregulated reinsurance charges to be passed through to California consumers will immediately cause rates to rise by 40%… But not only will rates immediately jump across the board, this change will expose all California homeowners to periodic reinsurance-driven spikes in premiums of 50% or more and spates of non-renewals … [following] a major catastrophe in California or one outside of the state, like a series of hurricanes, or a tsunami on the other side of the world, or even a terrorist attack.”
The letter explains that current California law, which prevents the pass-through of reinsurance costs – the coverage insurance companies purchase to insulate themselves from some large losses – has protected consumers from much higher premiums faced in other large states such as Florida and Texas and other wildfire-prone states like Colorado. While insurers in California do purchase reinsurance, the premiums charged to customers reflect the actuarial rate the companies need to provide coverage without adding in the extra costs if companies decide to off-load some of their exposure to reinsurers.