Ricardo Lara
25 July 2023ArticleFeature

Honest dialogue needed between insurers and regulators: California insurance commissioner

Insurers and regulators need to have honest dialogues about the rates required to offer sustainable cover and determine risk, California’s insurance commissioner says

Local governments also need to do more to mitigate climate change risks and to ensure environmentally sensitive areas that will not be insured are not built on.

That was the perspective of Ricardo Lara, who is also co-chair of the National Association of Insurance Commissioners (NAIC), speaking in an interview with Bermuda:Re+ILS at the Bermuda Climate Summit in June.

Lara, who was also a panellist at the summit, said that a regulator’s job was to get consistent coverage for consumers, which was why the NAIC and state regulators had to be part of the discussions on rates and insurance availability.

“It is essential, so we can understand each other,” he said, adding that in the past some California regulators had been reluctant to engage with insurers, but this was no longer the case.

Asked about the decision of Allstate and other insurers not to insure new homes in California, he said Allstate had “paused, not withdrawn” from the state.

Lara noted that the state government had invested more than ever before in climate and wildfire mitigation.

He added: “There needs to be an honest dialogue between regulator and insurer on the rate needed and to determine risk.”

Local governments needed to be discouraged from building in areas that were exposed to risk from wildfires and other natural disasters, and insurers could play a part by making clear they will not insure buildings in these areas.   “We can’t say we are going to solve the problem and then let people build with gay abandon,” he said.

“We need to have an honest discussion with local governments on where and how we build, and what materials we are using. You can sell a home and say ‘it is an affordable housing project’ but if it is going to burn down and kill you it is going to be neither affordable nor safe.

“Insurance is the canary in the coalmine in the US for climate change.” Ricardo Lara

“We need to work with our local governments on land use issues. Insurers play a pivotal role because if a home is not insurable, that isn’t a win for anyone.”

Lara noted that his department was also working to narrow insurance gaps.

He said the percentage of policyholders with flood insurance was in the single digits, but over time California governors had declared flood disasters in every single county in the state.

“Who pays for the rebuilding of the rest of the community?” he asked. “Why not create a parametric insurance programme to cover more people?

“It behooves the insurance industry to mitigate the risk,” he said, noting it was always better to reduce the risk before a disaster than to pay for it afterwards.

Working together

As co-chair of NAIC’s Climate and Resilience Task Force, Lara said it was important to have a US climate resilience strategy and to share data.

He said of the NAIC: “All share data and determine what the models will look like. We know we cannot rely on historical models any more, especially in California.

“Insurance is the canary in the coalmine in the US for climate change,” Lara said. “How insurance reacts tells us where climate change is. I think we are there now.”

Lara said the task force was looking at climate as a multi-pronged approach—it covers solvency issues and the need for innovative solutions.

“In California we are not only looking at ways to make sure we have reliable and affordable insurance but we are working with insurers, our domestic companies, to ensure that they let us know and are transparent about what pricing they need, and what guarantees we can give the consumer to give them reliability of coverage.

“If we are going to look at bringing down the risk in California for the entire community, not just parcel by parcel, we not only get insurers committing to insuring in California, but it becomes affordable and reliable,” he said.

He added that the California government was investing a record amount of resources to bring down wildfire risks, and incentivising Californians with discounts formaking their homes more fire resistant in order to keep keep domestic insurance companies writing insurance in the state.

Lara took part in a Pride Month event before the Summit started. As the first openly gay politician elected to statewide office in California, he said, Pride Month was more important than ever because civil rights were being limited in many parts of the US.

“It seems as though we are going backwards when it comes to our civil rights and human rights,” he said. “So Pride Month becomes even more important—to be visible, to be out, to have corporate partners who truly support us, so it was a great opportunity to be here to participate with Out Bermuda. It is more important than ever that we remain committed to equality and fairness for every single person.”

The full interview with Lara can be viewed here.