Proposed Regulation Will Raise Rates but
Will Not Stop Home Insurance Companies' Market Boycott
LOS ANGELES, April 23, 2024 /PRNewswire/ -- Insurance
Commissioner Ricardo Lara's proposal to let insurance companies use
private black-box models and AI to predict the risk of catastrophic
wildfires will raise home insurance rates without transparency or
accountability, Consumer Watchdog will testify at a Department of
Insurance workshop this afternoon.
Commissioner Lara's proposal does not require testing of private
models to make sure they are accurate and fair, does not propose
uniform standards for their use, nor does it require approval of
models' reliability before insurers can use them to raise rates.
The proposal keeps models secret by requiring any public interest
organization, public official, or journalist seeking to access
information about a model's impact on insurance prices to sign a
nondisclosure agreement. Contrary to Commissioner Lara's public
statements, no independent panel of experts would review or approve
a model for use.
California law passed by the voters in Proposition 103 requires
insurance companies to disclose everything that has an impact on
insurance prices. The proposal violates that requirement. Consumer
Watchdog has urged that California create a public model that would
be fully open to public scrutiny.
"Mandating non-disclosure agreements to meet the confidentiality
demands of private black box modelers will prevent regulators and
independent public interest groups from testing models' accuracy
and from sharing their analysis with the public," said Carmen
Balber, executive director of Consumer Watchdog.
"Catastrophe models will simply be tools for insurance companies
to charge more unless Commissioner Lara agrees to public scrutiny
into how models impact prices, requires review and approval of
their design and use, and requires that insurance companies use
them to provide consumers and communities with actionable
information about how to reduce their premiums by reducing their
own climate risk," said Balber
Read the testimony here.
Sign up to watch the Department of Insurance "Catastrophe
Modeling and Ratemaking" Workshop at 2pm Tuesday, April
23rd.
The rule also proposes expanding the use of catastrophe models
far beyond wildfire loss, allowing the Commissioner, at his
discretion, to approve their use in any line of insurance,
such as automobile coverage.
Consumer Watchdog's testimony notes that even in Florida, better
known for passing insurance industry-friendly legislation than for
robust consumer protections, the state built a public hurricane
catastrophe model that is open to public scrutiny. For decades,
Florida has also had an expert commission to test, review and
approve all catastrophe models insurance companies use in the
state.
In July 2023 testimony before the Department of Insurance,
Consumer Watchdog presented additional concerns with models'
inaccuracy, variability and bias, problems that highlight the need
for model transparency.
In September 2023 testimony, Consumer Watchdog highlighted
the financial conflicts of interest of some Wall Street catastrophe
modeling companies that should bar their use in
California.
Insurance Commissioner Lara's "historic
agreement" with insurance companies last September included
allowing the industry to use black-box catastrophe models to set
insurance prices. Documents obtained by Consumer Watchdog under the
Public Records Act reveal that the only consumer benefit of the
plan, a "commitment" by home insurance companies' to resume sales
in areas they say are risky, is a false promise. The legislation
Lara's plan is based on would not require insurers to offer
comprehensive home insurance to homeowners. Insurers could instead
offer bare-bones FAIR Plan-equivalent policies, leaving consumers
no better off than they are today.
Consumer Watchdog said in order to get consumers insured,
insurance companies should be required to cover every homeowner who
meets state standards for wildfire risk reduction, including home
hardening and brush clearance. Insurance companies that refuse
should be barred from the home and auto insurance markets for five
years.
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SOURCE Consumer Watchdog