Senate Insurance Committee

Established quorum.

Senators Padilla? Present. Padilla present.

Nilo here.

Becker here.

Mendivar?

Richardson here.

Rubio present. Thank you for that. We have a quorum. Welcome, everyone. We have two items on the docket. Before we begin with that, I just want to welcome Senators Richardson and Menjivar, who have joined the Insurance Commission Committee, and welcome and good luck and Godspeed. Two items on the docket, including one by the chair, but I see that Senator Kvaldin is here with respect to file item number two, SB 1315, the Drive My Car Act. Welcome, Senator. Please proceed when you are ready.

Thank you, Senator. Appreciate the acknowledgement and the unique circumstances of this bill. I just will say and give you credit. We had a long conversation about the bill, about the procedural progress of the bill, about jurisdiction. and it may be very premature from a legislative standpoint, and it may be still to be determined and too far into the calendar with respect to our purposes today about where appropriate jurisdiction may ultimately lie and where you want to move this bill forward. But I really want to acknowledge the senators' leadership and guts, for lack of a better word, for seeing the horizon issue, whether it's ripe or not legislatively, but it's a complicated issue that will be a reality upon us as a society and will impact numerous overlapping areas of public policy. And so I made the promise to the author that I would help facilitate the ability to keep the bill alive, at least for those purposes, if anything, but to begin an important conversation. And so for that, Senator, I give you credit. Given that we are here in hearing today and given those representations, still procedurally we do have some obligations, as you well know. And so I have to ask, are there any primary witnesses in support of your legislation? Are there any individuals present that would like to approach to acknowledge or represent support for the bill? I have to ask as well with respect to opposition. I see none. Are there questions or comments from members of the committee, Senator Becker, followed by Senator Rubio?

Thank you, Senator. Senator Rubio.

Thank you Senator Vice Chair Nilo Thank you Mr Chair I would echo everything that the chair said And Christopher and I excuse me Senator Kavaldan and I we known each other a long time We had a good discussion about this also. And when I first read the bill, I was kind of confused by the approach, but he quickly cleared it up for me. this would be like me selling somebody a car that they really like and then six months later taking them a completely different car that they didn't want and taking the car back that they did want and forcing them to keep that car. That's the extent to which software can be changed on these vehicles. And it is a brave new world that way. And I think what he's trying to address makes perfect sense.

Senators Padilla?

Padilla, aye.

Nilo, aye.

Becker, aye.

Mendivar?

Richardson, aye.

Rubio, aye.

Thank you for your great indulgence.

Mr. Vice Chairman and members with your indulgence we're awaiting the arrival of the Commissioner who I'm told is right here.

Thank you sir. All right, Mr. Vice Chair and members, thank you. I'm pleased to present SB 876. And would first like to acknowledge you will take committee amendments as indicated reflected in your staff analysis. Certainly want to extend my thanks and appreciation to all key stakeholders who we've engaged with with respect to this particular piece of legislation. I'll introduce this bill. I did so with the specific intention to have a broad conversation about insurance availability and affordability and also have a conversation specifically about ways in which we can comprehensively reform the claims process. This represents a broad measure, a complex measure, as many of you are aware and is deeply informed by the awful experience this state had at its worst so far in January of last year with some of the destruction that we saw in Los Angeles County and surrounding areas. out of this pain and suffering of thousands of people and with the well-known and ongoing and anticipated increased propensity for severe wildfires one thing that become clear decades old insurance laws practices are no longer sufficient to meet the moment A year on from Los Angeles survivors have to this day continue to report ongoing concerns and problems, many of them legitimate and deserving of attention, with accessing insurance benefits, with delays, denials, and sometimes miscommunications, circumstantial or otherwise, from insurance companies topping the list of concerns. The number of complaints filed in the administrative process with the department have substantially increased since that time. We are attempting to take a lesson from this situation and seek to find operational ways to reform the claims process, cut red tape, improve payouts, and end delays. As the chair of this committee, I am committed to balancing the needs of both affordability and availability, and to ensuring that policies keep pace with the needs and the realities of the moment. However, also, that whatever architecture we can move forward is workable and operational and avoids unintended consequences. This is why I've engaged with a broad coalition of interest groups across the spectrum, including from the insurance industry, and I have heard and listened to their concerns about potential cost impacts of the operational bill. bill. In addition to accepting the committee amends, we have made specific, which of course removes the offer of guaranteed replacement costs, which is a significant and top concern for the insurance industry. I remain committed to working on issues like the mandatory additional 50% extended replacement cost and the doubling of additional living expense coverage after a disaster has been declared before the bill leaves probes. At the same time, I'll be working with stakeholders to address issues of adjuster delays and restitution on enforcement and penalties for policyholders, critical areas of concern for survivors, and in the opinion of many, critical to address inappropriate conduct where appropriate. SB 876 has some overlap with some other bills pending before this committee, and I as chair intend to work diligently with all stakeholders to try to resolve conflicts with that bill before it is presented here. As a comprehensive piece of legislation, this bill tries to fill critical gaps that were brought to our attention in the most destructive ways, protect homeowners at their most vulnerable moment, and remain committed to addressing these gaps while protecting policyholders from increasing costs where we can. Obviously with me here today is the Honorable Insurance Commissioner Ricardo Lara, as well joined by Amy Bach with United Policyholders. And I am informed as well from the Commissioner's office. We have a technical expert witness available for questions as well. Commissioner. Thank you. Thank you. Thank you, Vice Chair Nilo. Good afternoon, committee members. Thank you for the opportunity to testify in strong support of SB 876, the Disaster Recovery Reform Act, a measure I'm proud to support and sponsor. With me today is Deputy Commissioner Tony Signorelli. Before I begin, I wanted to say something plainly. I have overseen California's insurance market through the most difficult period in modern history, a new era of megafires and gigafires, when insurers were pulling back, curtailing underwriting, and placing caps on new business. I did not inherit a stable market. I inherited a market in crisis after years in which tough decisions were delayed or avoided. I did the politically unpopular thing. I acted. So when I hear that the claims that this bill is a market destroyer, I have to be honest. I actually scoffed. Do you really think I would sponsor a bill that would take us backward to the chaos I fought so hard to stabilize? Do you really think I would once again put my department, my staff, or myself through the political attacks, the personal pressure, if I believed that this bill would actually harm the market? Of course not. SB 876 is about one thing, making disaster recovery faster, clearer, and more fair for the families who have already lost everything. And let me be equally clear, the sustainable insurance strategy is about long-term market health. SB 876 is about what happens after a family loses everything. These are separate issues. And no paid advertising campaign, no slogan, no social media ad should confuse the two. As you all know, California's wildfire reality is now a year round. Fires are larger, faster, and more destructive than ever. 2019 was a definitive turning point for California's wildfire landscape, landscape, marking a transition into a new era, an era where 100,000-acre megafires and 1 million-acre gigafires became the recurring reality rather than an anomaly. Last year, 14 destructive fires across LA and San Diego counties made this particularly clear. As you all know, the Eaton Fire in Alcadena and the Palisades Fire in Pacific Palisades alone, destroyed or damaged more than 16,000 homes. Over the past year, my department has held multiple insurance workshops, met with survivors across the state, investigated more than 2,000 consumer complaints, and recovered over $250 million for policyholders to date. That's just over one year. And yet, more than a year later, survivors are still reporting delays, denials, miscommunication, and a claims process that forces them to fight for every single dollar. These are not isolated stories. These are symptoms of a systematic failure. Underinsurance has become the rule, not the exemption. Replacement cost estimates are outdated. Mandatory building code upgrades have policyholders with insufficient coverage, and survivors face what they call adjuster roulette, starting over every time a new adjuster is assigned. This is not how a recovery should work. And let me tell you what SB876 actually does. It is designed to break the cycle and restore confidence in a system that families depend on at the worst moments of their lives. The bill is about recovery. It's not about rates. It's about what happens after a family loses everything. Accurate real-world replacement cost estimates. Families should not discover after the total loss that they were massively underinsured. SB 876 requires insurers to provide estimates that reflect actual construction costs, not outdated numbers. Stronger coverage options, not mandates. SB 876 requires insurers to offer sufficient extended replacement costs. It does not force anyone to buy this coverage. It simply ensures families have the option to protect themselves. Building Code Upgrade Coverage When rebuilding homeowners must meet current safety codes SB 876 strengthens coverage so families aren blindsided by out costs for mandatory upgrades Faster, fair claim payments. This bill establishes clear timelines that standardize payments to policyholders. Actual cash value within 30 days. Replacement cost benefits within 30 days of documentation. Interest on late payments. This ends the slow, fragmented claims process that has kept families displaced for months. SB 876 requires a status report within five days of any adjuster so survivors don't have to start over. For the first time, insurers must also submit pre-disaster emergency response plans to the department. This ensures insurers are ready before the next fire, not scrambling after. It also provides stronger penalties and mandatory restitution. During a declared disaster, penalties for unfair claims practices are doubled, and insurers must provide restitution when they violate the law. This ensures consequences when families are harmed. You will hear arguments today that SB 876 will destroy the market, raise premiums, or drive insurers out of the state. And let me address this directly. SB 876 is about recovery, not rates. The sustainable insurance strategy is about long-term market stability. SB 876 is about what happens after the disaster. These are separate issues, one that does not undermine the other. SB 876 will likely create additional costs for the insurance sector, specifically in the aftermath of a wildfire, but it also will improve recovery for survivors and the communities. It will help address repeated concerns that my staff and I have heard directly from countless of wildfire survivors about their claims, experiences with their insurers, and any costs associated with this measure can be reflected in future insurance rates and rate filings subject to review by my department. The SIS is working and insurers must do their part. Seven insurers have already filed SIS filings. Five have been approved by my department. The first approved plan took effect on March 1st. Insurers say let the SIS work. My response is simple. Where are your rate filings? We will continue to do our job. We need you to submit your filings. You can't say let the SIS work and not submit your SIS filings. SB 876 does not create unlimited liability. The bill requires insurers to offer coverage options, not provide them automatically. Consumers choose what they want and what they can afford. It also helps with faster payments and clear communications, not to destabilize markets. They stabilize families, they stabilize communities, and it stabilizes recovery. Survivors cannot wait years for clarity. We all have heard too many stories of families still displaced years after the fire. SB 876 addresses the gaps that cause those delays. This bill is not about adding paperwork, it's about adding dignity, stability, and fairness. When a family loses their home, they should not have to fight their insurer, navigate a maze of adjusters wait months for payments or discover they were underinsured only after a total loss California consumers deserve a system that meets the realities of today disasters not the world of 20 years ago SB 876 is a comprehensive survivor reform that strengthens coverage, speeds recovery, and holds insurers accountable when California needs them the most. I respectfully ask and urge your aye vote so that welfare survivors and non-disaster survivors can rebuild with dignity, stability, and a full protection of the coverage they actually paid for. Thank you. I'm happy to answer any questions.

Oh, sorry.

myself sir

thank you so my name is Amy Bach I'm one of the founders and the executive director of a non-profit that was born in around the Oakland Berkeley fire and has been serving California insurance consumers now. This is our 35th year of service and our anniversary, and we are very grateful to Chairman Padilla and Vice Chair Nielo and all of the committee for considering this measure. We also will be urging your aye vote. Our organization has been working in the aftermath of wildfires for all that time, And I've seen firsthand the issues that this bill is very narrowly tailored to address. So everything that this bill takes aim at are the exact same problems that consumers have been bringing to our organization. I provided the committee staff with our 12-month survey results from the LA fires. You know, this body has enacted many previous measures over the years. And don't worry, I'm not going to try to match his time. I appreciate your indulgence. I'm keeping track. commissioner said, we want people's policies to work for them. We want the insurance they've invested in to deliver that peace of mind that it's advertised to give them. We don't want them having to run to lawyers to get help and file lawsuits. And that is a core of what we're trying to do here is build on what you've already done and what we now know still needs more work. So there's a lot of specifics in this proposal. Our organization works very closely with the complaint handling unit. Mr. Signorelli over here is the bureau chief. And so we work together on these issues. And we, my organization, we give people DIY guidance. And then we always say, next stop, if you can't work it out with your insurer directly, you should go to the DOI. So they're spot on with everything that they've got in this bill. And when, you know, we have been doing these surveys to find what people's insurance gaps are, it typically has been two-thirds of disaster survivors come up short on what they need to put the house back that they lost. After the LA fires only 7 of the people who answered our survey said they had enough insurance So we haven solved the underinsurance problem You could conclude I sure will So we got the underinsurance fix code upgrades We want people to rebuild resilient. We want them to comply with codes for lots of reasons. And finally, the ALE, you did a great job giving people up to three years, but then the dollar amounts are not enough. So we have to fix that. And then giving them that one place, the insurer, one adjuster the whole time, will really help people get their claims resolved. And then finally, you already gave people the right to replace by buying instead of rebuilding. There's a lot of good reasons for that. We just want to make it more feasible for them to do that without leaving money on the table. I thank you for your time, and I do urge your aye vote.

Thank you, Chair, Vice Chair, members of the committee. Marissa Hagerman with Tratton Price Consulting, registering support on behalf of California environmental voters.

Good afternoon, Nicole Kurian with the Office of Los Angeles Mayor Karen Bass in strong support.

Keith Coolidge on behalf of AARP California in support.

We got a tweener. Good afternoon, Mr. Vice Chair and members of the committee. I'm Robert Harrell. I'm the Executive Director of the Consumer Federation of California. Just a couple of quick points. We have no official position on the bill. We are encouraged by many of the provisions within the bill. They survive. I would respectfully disagree with the characterization that the commissioner made that he inherited a market in crisis. I think he inherited a challenging market, as would anybody, but so did his predecessor and two predecessors before.

Fair enough. Two quick points. One, underinsurance has been a problem for a long time. historically attempts to resolve under insurance have been resisted vehemently by the insurance industry. Number two, I do think there's a big problem with what I refer to as the adjuster du jour. And I know that that's one of the provisions. These are issues that the other witnesses have covered. Appreciate the echoing, but

You want me to go first, Sarah?

Thank you so much for the opportunity to provide testimony today. My name is Denny Ritter, and I'm here on behalf of the American Property Casualty Insurance Association. On behalf of our member companies, I am here today to respectfully oppose SB 876, while also acknowledging the author's willingness to work with stakeholders on amendments. sincerely appreciate the numerous meetings with you, your office, and the sponsors of the bill. I think we counted eight. We really appreciate the author's intent to remove the guaranteed replacement cost requirement. As you identified, that was a major concern for our members, and so greatly appreciate that. However, even with that amendment, SB 876 removed an extremely broad measure containing more than 20 policy provisions that taken together we are concerned would materially increase the cost of insurance and reduce flexibility in an already fragile insurance market. We're really concerned about the cumulative and unintended consequences of the remaining provisions. The bill does include multiple mandatory coverage expansions, such as increased extended replacement costs and higher additional living limits that will need to be priced into every homeowner's policy statewide, regardless of location or consumer preference. While these benefits may sound helpful in isolation, the reality is that these mandates will increase premiums for all Californians, including those in lower-risk areas. SB 8076 also converts certain coverages into automatic payments by requiring 100 percent of contents coverage without an inventory or evaluation. This issue was just negotiated in Senator Allen's SB 495 last year. where insurers agreed to provide 60% without an inventory. This just took effect four months ago, and so the industry is very concerned that this is up for renegotiation so quickly. And again, this component risks higher insurance costs that ultimately flow back to consumers. And as the commissioner noted, this is in the midst of the Sustainable Insurance Strategies adoption. We are concerned that proposals like this will slow that adoption and that progress. We appreciate the author's commitment to continue negotiations as the bill moves forward, particularly to narrow its scope, address our affordability impacts, and avoid further destabilizing the market. We do acknowledge there are components of the bill that I think we want to work on. The components dealing with how wildfire victims are treated by their companies, that's important, and that's something we're committed to working on. We remain ready and willing to work collaboratively, good grief, with the author, the committee, and the Department of Insurance on targeted workable solutions that meaningfully improve outcomes for consumers. So for these reasons, while we do really appreciate the amendments being taken today, the APCA must respectfully remain opposed. Thank you.

Good afternoon, Mr. Vice Chair and members, Saren Taylor, on behalf of the Personal Insurance Federation of California. Also, thank you for the opportunity to share our concerns regarding SB876. And we do want to first thank the committee for the proposed amendments. And we greatly appreciate Senator Padilla's commitment to further reduce the financial impact on consumers. Now, SB876 set the table for an expansive discussion among stakeholders, and there have been constructive conversations. However, there is a lot more work to be done. We believe without additional changes, the bill will make homeowners insurance significantly more expensive, while also making it harder to find coverage. Our cost impact analysis indicates premiums could rise by 15 to 20 percent, which is about $200 to $350 a year on average, and well over $1,000 for those in high-risk areas. The bill layers more than 20 new mandates onto an already strained market, mandates like higher extended replacement costs, expanded additional living expenses, and full content payouts. These are not marginal changes. They are fundamentally increased claim severity across every policy in the state, and those costs will drive sticker shock in premiums statewide. Even consumers in low-risk areas will pay more for benefits they may not want or even need. At a time when affordability is already a crisis, we think the bill moves in the wrong direction. It also concerning that the bill weakens claims controls by requiring rapid payouts without appropriate verification which increases fraud risk and inflates costs I think the most serious consumer harm though will come from reduced availability And as costs rise and liabilities expand, insurers could be forced to pull back, writing fewer new policies and non-renewing more existing ones. Now, we've already seen this dynamic in California. Rather than resolving the problem, we think that SB876 will accelerate the problem, and we want to see consumers have more stable, affordable, and available insurance, and we're concerned that this bill will undermine those efforts. So respectfully urge a no vote, and thank you.

Good afternoon. Sherry McHugh, representing the Pacific Association of Domestic Insurance Companies, respectfully in opposition, and we look forward to working with the author and the department as the bill moves through the process.

Annalee Augustine, on behalf of the Civil Justice Association of California, also respectfully opposed.

Good afternoon, Mr. Vice Chair and members. Kareem Drisi, on behalf of the California Building Industry Association, with a respectful, opposed in this amended position. Very grateful to the author and to the commissioner for their leadership on these issues, and we look forward to continuing to engage on the measure. Thank you.

Thank you. I want to first thank the insurance commissioner for being here and for all your efforts to stabilize the market and get us back on track and bring insurers back to California. Thank you for those efforts. I want to thank our chair for bringing forward this comprehensive and meaty piece of legislation. I know there's much conversation we'll have today and going forward on this bill, and I'm sure there are some things to iron out, and I'm sure there are other folks, including our former chair, who know more about these topics than I do. I just do want to, from my vantage point, you know, I'm in the northern part of the state. I don't represent, obviously, the folks that were affected in Southern California. But I do want to remind folks that we are talking about a total loss situation, right? We're talking about a total loss situation. And I do need to read because I checked in a friend, you know, a year after the fire. And he sent me a long list of things. I'm going to take the opportunity to read here because this is relevant. And, you know, he said in terms of insurance, different companies pay out different percentages of personal property. Safeco paid out 50% to us. Meanwhile, others have received 60%, 70% or more. Safeco, which is a company I'm happy to discuss with afterwards, is requiring a list of items or a series of two to three-hour verbal interviews to go room by room. why did they write and bind a policy for personal property coverage that they want itemized now down to the number of paper clips and jars of peanut butter? If I'm paying for coverage that was bound, pay out. It's not simply about the money either. I do not want to torture myself going through everything I used to have and no longer own. It's terrible. It's just an email that I received relatively recently. on the ALE coverage, which again is a subject I'm less knowledgeable about, I want to dive in, but he does talk about how in his case you know it a high demand area and low inventory And the ALE doesn cover our living expenses It was a deal we cut early on before we understood what would be required This insurance company I mentioned earlier is now saying they'll only cover ALE for another year, despite the fact it would take longer than a year to plan, get permits and rebuild. A lot of other stuff in here I could read, but I did want to share that. And so I appreciate – it gives me personally – again, if someone doesn't represent these areas, although I've heard a lot certainly from my colleagues, a personal understanding of the toll this has all taken and make me feel as a lawmaker that there has to be a better way. And I appreciate you all working to find a better way for these people who have experienced total loss. And again, I know there's ongoing conversations to be had and changes were already made in this committee. But I do appreciate that you're taking this on and moving forward in this area. Thank you.

Thank you, Vice Chair. Appreciate it. First of all, I want to thank the Insurance Commissioner. Since I've been working with you for the last seven years, at least I want to validate the work that you've done. We spend so many hours, even on holidays and even on weekends. So at least I want to just take a moment to say thank you. The work that you've done has required a lot of attention, and you certainly have been very present through our conversations, so thank you. Secondly, I know that we're going through some very difficult times, and I think the insurance commissioner stated earlier, we used to have fire seasons, and now they're gone. This is our new normal, and the more fires we have, the more things we have to fix. And I appreciate the author of some of the conversations we've had. And it's about sitting down with the stakeholders and coming to a good middle ground where we're making sure that every person is taken care of. This is the most difficult time. I've also toured the impacted areas. I've spoken to so many victims. And it's heartbreaking. I can't even put myself in their shoes. their shoes. So thank you for trying to ensure that they're taken care of in their most difficult and dire times. But I also appreciate your willingness to discuss some of the areas that can potentially impact the affordability of insurance. We know that insurance right now is very high and the availability crisis still lingers. And thank you for agreeing to some of the amendments that we discussed. And moving forward, you agreed to continue to work on some of the issues that I think we can find consensus on. So I appreciate it. And thank you to Amy, who I've worked with as well. Thank you for the work you do.

Thank you. I'm going to start with a couple. First of all, it's nice to meet you in person, Insurance Commissioner. I've seen you a couple times many years ago, but good to see you. And thank you for your service. We don't say that enough. I'm going to start off with some general comments and then I'll get into some questions. For me and for what I hear of people in my district, the biggest thing people want to see regarding insurance is that number one, it's accessible. That if a person is buying a home or changing coverage or has a different life experience, that they can actually call a varying group of insurance companies and actually get insurance. The second thing people say to me is how expensive the insurance is. And even if they could get the insurance in many cases they afraid that they can afford it So I actually asked to be on this committee and I requested to be on the committee because I was concerned with those two points And so I'm hoping in conjunction with the author, with yourself, the insurance commissioner, and all members of this committee, that we would, and now I'm just making a broad statement before I get into my questions of the bill, I'm really hoping that we will be able to bring forward legislation progress that would one figure out how can we get insurance companies back to California because we don't have enough we don't have enough policies that are available and they're certainly not affordable so for me that's really what I want to talk about is how can we get there the second thing is insurance commissioner you mentioned this is a new era. For me, I would really like to see us be able to create a fund that when, and I noticed you said, I noticed I said when, that when these disasters occur, that we have a funding source to help. And because we can't predict whether it's going to be a major fire, whether it's going to be a major earthquake, I mean, flood, who knows what's going to happen. And I just really think we're, as legislators, we're not doing our part by not thinking far enough ahead. So for me, I've heard terms in my previous positions, infrastructure banks, whatever it is, but I really do think, and I'm willing to work with anyone who's willing to do so, to create some sort of fund that owners put in, the state puts in, the industry puts in, we all put in, so we have some money, so when something happens, we can help make people whole. Why do I say that? Okay, so I just sitting here, you know, utilizing, I won't say what device, we don't want to give companies preferential treatment. But I, on my device, I looked up and I said, how many homes were destroyed? In the Eaton Fire, 9,418 homes were destroyed. Imagine 9,418 homes. And of those, 1,071 were damaged. In Palisades, 6,833 homes were destroyed. That's over 16,000 homes. Then I did the math because I have an MBA. I did the math and I said, how many average homes are in a block? 30 to 70. So I used the number 50 in the middle.

Senator Richardson, I would love to sit down with you and kind of explain to you the entire sustainable insurance strategy in your office to kind of tell you kind of how we got here and how we are stabilizing the market in a way that's innovative. we cannot go back to basics in California. The climate, there's no way it's going to allow us to do that. And so what we've engaged in the last several, five, four years has really been two things, really modernizing the regulatory statutes that we have been operating under in California, which were completely 30 years old and were really not allowing us to modernize the way we saw insurance and in a changing climate and really worked to negotiate this with the industry about what tools they needed to help them understand better how climate was, you know, affecting, you know, where they covered, how they covered and why they were curtailing their underwriting and why they were choosing to create gaps. And that was, you know, the cost of reinsurance. California was one of the first, the only states that didn't allow for a pass-through on reinsurance rates and didn't allow for the use of, I'm sorry, I know that some of the centers already know this but didn allow for the use of forward technology like catastrophic models for example And so we embarked on a couple journey of if I give you these two things that you have been asking for for the last 30 years

And so we engaged in what we felt, and I think the industry and some consumers can tell you, was really forward-looking, visionary strategy that gives us guarantees that, one, insurance companies are not going to abandon these communities like they used to before, and some guarantees that other states do not have. Insurance companies in other states can submit a rate file and say, we want 50% rate increase. And that gets implemented with no guarantees they're going to ever come back to that community that was ravaged by a fire, say, in Boulder. We don't have that anymore. But they need to submit the rate files. So when they say, let's let the SIS work, that's great. But you need to submit your rate file so that you are now subject to these new rules, right? And so they sit here and say, yeah, let's let the sustainable insurance strategy work. And by the way, we have six companies that have and are now writing in these communities, but we need the rest of them to do the same thing. So when they tell you, let the sustainable insurance strategy work, then let us do our job. Submit your rate file under these new rules so then we can hold you accountable to writing in these areas. Right. And that is a real kind of fast way to explain to you the years of work that we've done and and really years of work that have, you know, really modernize our our our system here in California. Now, this bill really to the credit of our chairman and really working, this is the piece that gets to all of the consumer complaints that we have heard, not just from the LA fires, but from the over 123 fires that catastrophic fires that have happened since 2019 to my tenure. It's almost the end of my tenure. And us being able now to have an honest conversation with you all, with the industry, with consumer groups who have said, why haven't you done this, this, this? And these are the issues that we're seeing. And so when we hear about cost and the industry come and say, this is going to increase the cost. Well, you know, let's have that conversation because we can't have it in a vacuum. We need to have it in an open dialogue in a legislative process where we can actually see how much is this going to increase. And maybe for consumers, they just want to know how much is this going to increase my premiums so that we can actually have this conversation. conversation. So we're finally bringing you a comprehensive bill where we're negotiating, we're having an open conversation about these critical issues that for years consumers have been asking us to take. And so this is the dialogue that you're seeing. And this is just the beginning, as we've said. But every single one of these issues has been brought to us and have been informed by every single catastrophic fire that has taken place at every part of the state. And so there's other legislation that's specific to some of the issues that we've learned directly from the LA fires, which again are unprecedented. But this is the consumer portion of these reforms And I don mind having the conversation of is this going to increase costs for premiums Is this going to increase rates But let have that conversation because I don want it to be done in a vacuum where consumers are not informed. Because there's some consumer groups that say, this bill doesn't go far enough. There's some consumer groups that say, you know, you should add more. But I wanted to, for the first time, have an actual dialogue with the legislature, with the industry with consumer groups and the Department of Insurance and figure out what are the things that we're willing to do to increase consumer protection and really be open about how this is going to impact the market and how this is going to increase or decrease the cost for for these policies we just want consumers to have the choice if they know that this is going to cost more give them the option to make that decision for their families

This being my first presence in the insurance committee, I asked my staff, okay, are we getting eased into it, my first committee? She's like, yes, there's two bills. I was like, great. And she's like, well, one of them is 22 bills in one. So I have a lot of questions, so I'll be concise with them. I'll start with the first one. Ma'am, you talked about a survey. I'm wondering in this survey, people were asked if they're okay with paying higher premiums if more coverage is given.

They need to approve of charge more.

Okay, so if I understand the question correctly, how much time would we need to request?

I guess I assume the effective date of the bill would be January 1 of 2027 Is that correct And it would pass in what September of this year So historically no we have not gotten rate approvals in three months And we're closer to a year, depending on the line of insurance.

Oh, yeah. So part of our... The concise...

The opposition mentioned 15% to 25% premium increases on average. I'd like the author of, you know, in these conversations, what you're taking when you're hearing both, Is that something the commissioner would approve of 15% and 25% increase? That seems a lot. And Senator, what are we thinking about this affordability piece?

I have so many questions, Commissioner, so I've got to move on to the next one. Opposition, under the additional living expenses, one of the provision is regarding the fair rental value in lieu. On average, are policyholders submitting receipts that end up totaling the total max? And if that's always happening, what's the problem with just paying out the total max?

I would just like if there's a discrepancy where like we're only 12 percent of people and now we're going to 100 percent pay everyone. I would understand that. But if I would just say on the additional living expense piece, you know, we we met with a few of our companies right after the L.A. fires and they were helping place some of their customers in Airbnbs, hotels, apartments, you name it.

It sounds like there's still conversations on that specific provision. Great. All right. The 15-day grace period under still ALE, maybe just for my education, That provision exists because is there a current time limit that the clock starts ticking once a disaster occurs as to why we need a 15-day grace period?

Yeah, so we have thoughts. I would say our quibble with that is the term habitable. I'm not sure of the correct pronunciation. But that is the subject of a lot of discussion right now. I mean, Amy, you're part of the Smoke Claims Task Force. There's a lot of discussion right now in California about when a home is deemed clean or habitable to return. And so I think our concern is about putting that exact term. I don't think it's necessarily a concern with the 15-day grace period. It's a concern with what may still be an uncertain ongoing situation between a policyholder and an insurer that that could introduce a wrinkle.

You're certainly digging deep into the elements of the bill, and certainly some of these are not, as we've gone through and tiered, what are the primary things. Not a primary thing. But I will say, well, no, I mean, I will say generally with regard to that issue, right, the claims adjusters issue, I think what we've been trying to say is we recognize that certainly there are a lot of concerns and issues out there. And we're happy to work with the author and the commissioner on how can we have a better customer service experience here, tighten some of these things up where appropriate. you know, looking at the timelines, looking at what the communication process is. I think that's an important part of this discussion, and we certainly don't object to having reasonable conversations about that.

So, yeah, a couple of things on that. So, I mean, right now there is a certain amount of minimum building code upgrade that's in the policy. What is that, 10%? 10% right now. That's the minimum. You can right now today buy more. You have the option to add more if you want. This bill wants to propose to boost that up to 20%. Again, I think it's to the commissioner's point, having a transparent conversation that that's going to cost some more. And then the bill gets into other what we sort of started to call stacking provisions where it says, well... you can take that building code upgrade and buy a house in another location where maybe you don't need the building code upgrade, but you can add that to your price you pay and consider it part of your total coverage. And so this is where you start. There's multiple pieces to even each provision in here, each proposal. And then those things start to add up to more and more, again, more premium hit, more cost. But then sure it would pay the higher premium to cover those costs, right? Well, there's one piece, which is pay a higher premium if you want a 20% building code upgrade. And then there's a second thing which says, well, I'm not even going to rebuild at my current location. I'm going to go to another location. And then you have to apply it there where you may or may not need it. You may not incur that cost. Like a big part of insurance is covering people for costs they actually incur. And this gets away really philosophically from that core concept now to say, well, really, now you're just buying benefits and you can stack them and use them in multiple ways. And that has –

But that one, that's a little hard to take at face value. But I'm wondering where we got to 20 percent. Is that because we saw an average of that? What was the increase of building codes increases? Well, yeah, what we're seeing is even with the 10 percent and even recently in these fires from last year, we're seeing people are going over. I mean, their their building code upgrade expense is higher than the 10 percent they're being allowed under the policy. So they are still paying out of pocket. And so the goal of that particular provision is to trigger after declared disaster from 10 percent to 20 percent, thereby giving greater ability to be less ability of having underinsured for the building code upgrades you're required to do when you rebuild.

I think what we're saying is circumstantially that there's going to be a new delta between what is going to be demanded of you or required of you to recapture what you've lost or build a portion of what you've lost when you're in a declared disaster scenario than you are in a traditional circumstance. So there needs to be an additional ability to be covered to that extent because of that particular circumstance.

Really quick, sorry. Yes, I just want you to understand because the other element of this is it says it can happen in another location and it could be years after the fact. So when an insurer is trying to price that building code upgrade, it is now saying, and that building code upgrade could not exist today. It's something that's going to happen three, four, five years down the line in a different location. So how do you as an insurer know how to price that? So that's one of the concerns. I'm sorry. I will leave those back and forth.

Opposition.

Under the emergency only, yes. So imagine, if you will, that you work in an insurance company. there's a massive disaster. You don't have the amount of claims adjusters in the state that you know you're that you need in a situation like this. You don't you just don't keep those amount of people you know stationed here in California So you fly people in from around the country So I think insurers try really hard to settle things as quickly as possible We set up what are called insurance villages usually in partnership with the Department of Insurance in a given state. And it's exactly what it sounds like. It's a Home Depot parking lot. You have a bunch of insurance tents, essentially, and you go up to your insurance company's tent and say, you know, this is, here's my information, et cetera, and you're getting checks right then and there. That is how it happens post-disaster. Now, it's obviously a much lengthier process once you start to get into the rebuild. So I want to be responsive. I'm just, you know, what insurers do, and in order to meet these timelines, they'd have to bring in more teams. You'd have to bring in more teams to be able to meet that. Do you think that's an accurate capture? It is during the actual, like, the

And Amy is the expert at this because this is one of the number one issues that we hear. And it's heartbreaking. Well, I just want to add that what we have been told that at this point, where we're about 14 months after the fires, 15 months, that most of the insurers really hardly have any adjusters on the ground anymore at all. I think I've been told that Allstate has like one or two. So that's, you know, this is getting at the frustration that people have.

There are claims violations that the insurance company violates during the handling of the claim. Okay. Got it. Does that go into a fund? Currently, it would be the same as under current law.

They occur on a regular basis, you know, in the thousands per year in total. And then the insurance commissioner takes action on a number of them as they reach certain thresholds and penalizes insurance companies. I think it's also important to note that the proposed language deals with where we place liability, what circumstances will bring liability, and then enhancing the authority of the commissioner under an existing statute to bring additional pen, including order and restitution on a greater scale. This gets to enforceability and, frankly, disincentive.

Yeah, when you have your – let's talk big numbers. You have your million-dollar policy. Let's say an insurance company will generally give you, let's say, 50% of that as your personal property. So you may have $500,000. Because that's what I paid for. Because I paid a premium for $500,000 or whatever the number. It could be $100,000, whatever that number is.

Even though I pay only for a coverage of 50%?

Because they're only giving like $250,000 is what you're saying.

Or they have to do this itemized inventory that Senator Becker's friend complained about that you probably have heard a lot about of this, you know, contents of the medicine cabinet, ridiculous, just to get what arguably you paid for. Yeah. Now, if all the, I forgot the number that is how many homes were destroyed just in the LA fires. So if everyone gets a hundred percent, is there the funding for all of that? I'll start. I'll start. I'll start. Yeah. I mean, again,

Okay, if I may, I would also add, I mean, this is a policy limit that you're supposed to be paid for losses that you actually incur, right? So if you have a million-dollar policy to utilize Tony's example, coverage A, you have a million dollars in dwelling coverage. What's called coverage C, which is your contents, when you sign up with your company, they estimate. They go, okay, you have a million-dollar home. We're going to assume that you have somewhere in the neighborhood of $500,000, $600,000 in personal belongings, your couches, your clothing, et cetera. But we don't know. We're not forcing you to do an inventory when you sign up. That's the upper level. But we going to price this based on all of the actual I not an actuary but all of the actuarial losses for years past how much what percentage are people claiming for personal contents following disaster And we going to price that accordingly Under this bill, it would require that whether or not you've lost $500,000 worth of personal belongings inside your home, you get a check for $500,000 and you don't have to provide an inventory, anything. And so the fact is, if you have $200,000 worth of belongings under current law, you get 60% of your contents coverage. So in that example, you get $300,000. But you can still do an inventory for the remaining amount if you have really expensive couches or something. And so the concern here is that you would require insurers to either pay out for losses that you may or may not incur, or they may change the way that they underwrite this, right? It may be now that when you apply for insurance, they say, okay, can you, where are you shopping for your furniture, where, et cetera. And then, you know, to Senator Richardson's point, it would then be something that you'd need to update yearly with your insurer, right? Okay, I just got to, you know, I replaced my IKEA couch with a restoration hardware couch. And so I think there's some concern about the, not only the cost, but also how this would impact policyholders. I appreciate the indulgence from the vice chair on this. I'm hoping as more bills come, I'll be more knowledgeable in this space, but thank you for answering my question.

But additionally, Commissioner, you mentioned the issue of optional coverage, but you didn't say what. When you said it, it sounded to me like every enhancement here was optional that the customer would ask for, and then the policy would be priced accordingly. As the conversation went on, I don't think that's what you meant. So what in the bill, what coverage is optional for the insured to select and therefore pay an appropriately higher premium?

What was that last point again? The 100% increase of additional living expenses, that piece.

Is that what you're saying? Or am I misunderstanding you? No. Then explain it better. I didn't really quite get the scenario. Do you think you got it?

Yeah. Okay. I get that. But I was talking about offering of coverage that the bill allows the insurance company to offer at the customer's choice and pay a higher premium for. Yeah. What's that? Yeah. What are those components? Yeah.

50% what?

Of the total policy?

Well, no, it's mostly dwelling.

Correct.

Yes.

I think that's – to be honest, I think that's – well, you just said people don't need all that, right? You said – you guys said most people have nowhere near their contents limits, and I don't know that to be true. I think this is a data point that could easily be – I can tell you it probably is true. I've had a house fire, and my contents coverage was nowhere – the contents that I had and paid for and was satisfied with was nowhere near the maximum. So – Okay.

this wouldn't even almost but no not a total law this is really just contemplating everything you owned is gone and of course survivors think logically well if everything is gone and I paid X for Y dollars why aren't Y dollars being you get it I know I'm telling you I didn't expect that I knew what the deal was and I'm just an average insurance consumer so I think I think rather than insurance customers buying less coverage the insurance companies are going to be more proactive with that and they going to adjust their premiums as a result So and that part of my concern about this is you mentioned Commissioner that this

And in my opinion, I don't see how you can separate those two because I thought your sustainable insurance strategy was a good start relative to the crisis we were experiencing. And that crisis was driven by disasters like this. So I thought that that was really part of the overall strategy is covering things like this. Now, in the meantime, we've seen various proposals to address, in particular, the Los Angeles disaster. And I would point out that most of the proposals that we've had for consumer-friendly allowances were after the Southern California fires. I didn't see a lot of that movement with regard to the Santa Rosa disaster nor the Paradise disaster. so I've always thought that that was interesting at the least so that's why I thought that sustainable insurance strategy was a comprehensive approach that certainly needed some modifications but not individual modifications for specific instances that was intended to be sort of all-encompassing so I don't see how you can separate it

And related to that, these provisions are going to increase costs for insurance companies. I don't know. I have concerns about what that means with regard to availability, excuse me, affordability, but also availability because if they're going to have additional costs, they're going to have cause to ask for rate increases. So how quickly are you going to be able to process the rate increases that they're probably going to request in order for the availability to stay? And where do you think, how do you think the convener is going to facilitate or not that process?

Well, that is going to be important. You've mentioned Prop 103 several times. That, Commissioner, is fundamentally the problem we're dealing with to begin with. But I digress.

I, in any attempt to reform Proposition 103, is probably doomed to failure because of the resources that that unnamed convener happens to have. But that's kind of a different, unrelated issue. I'm not going to support this bill today. I can tell it's going to pass, and you're going to continue to work on it. But as it is, it's not acceptable to me, and I just want to make that particular point clear.

Well, more comment, and I heard you state right now about the 60 percent negotiation that we worked so hard on last year, and I agree with you. And that's one of the items that I discussed with the author about trying to see if we can focus on that because we were working really hard last year to come to an agreement. And so I don't disagree with you that we work so hard every year. And here we are. The bill just passed in January, and we don't have a chance to let it work its way up, you know, when we have another regulation. And so he did express his willingness to work on it. I don't want to sue for the author, but can you state yourself that's one of the items that he's going to be working on?

Thank you, Mr. Vice Chair. I appreciate that time efficiency. I'm stretching up here. It's good.

And, of course, I would respectfully request an Iva.

Motion is do pass as amended to Judiciary. Senators Padilla?

Padilla, aye. Nilo? Aye.

Excuse me. Nilo, no. Almost had you, Roger. Almost had you.

No. Becker?

Becker, aye. Jones? Mendivar?

Mendivar, aye. Richardson?

Richardson, aye. Rubio?

Rubio, aye. Agreed. Hold that open. He's adding on later, so it's out. Okay. The bill is out. The one missing member will be adding on later.

Thank you. Thank you.

Motion is due pass to Transportation Committee. Senators Jones, Mendebar.

Mendebar, aye.

Appreciate everyone's patience and engagement.