Rancho Mesa's Lauren Stumpf and Account Executive Jeremy Hoolihan discuss the state of property insurance in California.

Show Notes: ⁠⁠Subscribe to Rancho Mesa's Newsletter⁠⁠.

Director/Producer: ⁠⁠Alyssa Burley⁠⁠

Host: ⁠⁠Lauren Stumpf⁠⁠

Guest: ⁠⁠Jeremy Hoolihan⁠⁠

Editor: ⁠⁠Lauren Stumpf⁠⁠⁠

Music: "Home" by JHS Pedals, “News Room News” by Spence

© Copyright 2024. Rancho Mesa Insurance Services, Inc. All rights reserved.

Transcript

Alyssa Burley: Hi, this is Alyssa Burley with Rancho Mesa's Media Communications and Client Services Department. Thank you for listening to today's top Rancho Mesa news brought to you by our Safety and Risk Management Network, StudioOne.

Lauren Stumpf: Welcome back everyone. I'm Lauren Stumpf and my guest today is Jeremy Hoolihan, partner with Rancho Mesa. He specializes in providing insurance services to the janitorial in maintenance industry. We're going to talk about the state of property insurance in California. Jeremy, welcome to the show.

Jeremy Hoolihan: Hi Lauren, it's great to be here at StudioOne.

LS: Great to have you.

JH: Thank you.

LS: So the property insurance market in California is struggling to keep insurance in the state, and thus is becoming more difficult to adequately ensure real property. And it's not just a residential property issue, it's also affecting commercial properties. The state of California is struggling to keep insurance in the state. Department of Forestry and Fire Protection, told state lawmakers earlier this month that it couldn't secure adequate coverage for two of its fire stations because of the wildfire risk. The State Department responsible for protecting us against wildfire is unable to find a carrier to ensure two of its fire stations that need repairs and the FAIR Plan isn't enough to satisfy bond requirements. Imagine how difficult it would be for an average property owner. Jeremy, what's happening?

JH: Well, Lauren, let me just tell you the struggle is real. As I mentioned in a previous podcast, I believe it was Episode 351, Governor Newsom filed a state of emergency in the property marketplace, which also spurred Commissioner Lara to draft what he called his Sustainable Insurance Strategy. Basically, the insurance industry experts and legislators are working with the commissioner as we speak to address this crisis. There was a recent public hearing back on March 26 to address some of the issues.

LS: Okay. And what was the result of this hearing?

JH: While it was a step in the right direction, there's still a lot of work to be done. Lara’s Sustainable Insurance Strategy was designed to restore insurance markets to competitive health by making it easier for insurers to get adequate rates and timely rate decisions. As it stands, it just takes entirely too long for decisions to be made on rate filings. One of the guest speakers was Sherry Scott, who's a principal and consulting actuary at Milliman, which is one of the nation's leading actuarial firms. She really urged the California Department of Insurance to amend its regulations to include a more comprehensive reconciliation checklist. I guess the idea is to streamline the process to ensure insurance company filings were complete and limit evaluations to issue impacting rates. She also suggests that the CDI only focus on underwriting material that has a clear impact on rates they utilize and all other non-rate-related items be evaluated separately. While there were some positive points to the public hearing, there's still a lot more work to be done. So in addition to that, just yesterday, April 23rd, the CDI hosted a public workshop with a proposal, and the proposal allows insurers to use catastrophic loss modeling in their ratemaking. As it stands, California is the only state which requires insurers to base rate on their own losses over the last 20 years, not allowing them to, you know, use future modeling.  Obviously the CDI and Commissioner Law have a lot of pressure to improve and streamline these rate approval processes. –

LS: Okay, so until the process of streamlining the rate approval process is fixed, if property owners can't find a carrier to ensure their property, they can turn to the FAIR Plan, is that correct?

JH: The short answer is yes, but really the FAIR Plan was only intended for extremely high fire hazard zones. But unfortunately, with the dwindling carrier options, many property owners are forced to go to the FAIR Plan to kind of put it in perspective as it stands currently, the FAIR Plan is ensuring over $366 billion of property coverage across California. Just in January and February alone, they wrote an additional $25 billion. And really the FAIR Plan is ill equipped to handle this much exposure. In fact, as it stands, the FAIR Plan has $700,000 in cash on hand, only $200 million in surplus, and an additional $2 billion in reinsurance available. So with nearly 400,000 policyholders and the FAIR Plan, you know, fielding over 2,000 calls a day, honestly, we're probably just a natural disaster away from really needing some emergency help.

LS: Wow. Wow, that's really unnerving

JH: Yeah, so obviously with the inability for insurance companies to have rates approved in a timely fashion, it's caused several insurance companies to leave California. The result is fewer insurance carrier options in many cases having, you know, to rely on the FAIR Plan. So, you know, stay tuned. I'll keep you updated on the progress being made with Commissioner Lara’s sustained insurance strategy and property owners, if I can make one recommendation. is to get out ahead early on your renewal process.

LS: Absolutely. Well, thank you, Jeremy. Thank you for bringing this to our attention. And I look forward to hearing what ends up happening with the rate approval process. If listeners have questions about their commercial property insurance, what's the best way to get in touch with you?

JH: Listeners can reach me at 619-937-0174, or my email at jhoolihan@RanchoMesa.com.

LS: Great, thank you, Jeremy.

JH: Thanks for having me, Lauren.

AB: This is Alyssa Burley with Rancho Mesa. Thanks for tuning in to our latest episode produced by StudioOne. For more information, visit us at RanchoMesa.com and subscribe to our weekly newsletter.