AIA Says Insurers Must Have Tools to Manage Risks and Solvency

A proposed bill that reportedly severely restricts insurers’ ability to manage exposure and calculate risk would give homeowners insurers no option but to limit writing new coverage in California, the American Insurance Association (AIA) said today.

Senate Bill 64, authored by Sen. Jackie Speier (D), requires insurers to seek prior approval of underwriting criteria from the Department of Insurance. SB 64 also reportedly limits an insurers’ ability to non-renew policies and prohibits the use of information obtained from consumer reporting agencies.

“SB 64 essentially creates a state-run insurance program because all aspects of underwriting and pricing would be controlled by state regulation,” said Bill Gausewitz, AIA assistant vice president, western region. “California’s homeowners insurance market is undergoing a natural adjustment period. While mounting mold claims and litigation expenses are driving up the cost of insurance, California is not facing a homeowners insurance crisis. The market has tightened, but many companies are actually increasing their market share. Legislation like SB 64 is an overreaction to a tight market and is likely to backfire and disrupt the availability of coverage.”

“SB 64 damages the ability of insurance companies to evaluate, underwrite and appropriately price potential insurance risks,” added Gausewitz. “Under SB 64 insurers would have little ability to control the risks they cover. Insurers must have adequate underwriting tools to manage their exposure and balance their books of business. Without the tools necessary to measure risks, insurers’ credit ratings and solvency could be jeopardized. Policymakers should proceed carefully and not eliminate the ability of insurers’ to operate in the state or California will become a nearly impossible place to offer homeowners insurance.”

SB 64 will be heard in the Assembly Insurance Committee today.