Clear contracts, new tech. Can California's insurance woes be fixed?

Experimenting with group homeowners' insurance policies. Clear contracts. Upfront agreements between policyholders and insurers.

Several candidates for the California Insurance Commissioner addressed the state's challenged insurance market, marred by insurers pulling back in recent years and by a stressed California FAIR Plan, the state’s insurer of last resort.

In an over two-hour-long forum held in the Pacific Palisades — the Los Angeles community devastated by the over 23,000-acre fire last January — four of the 11 candidates running for the position talked about wanting to move people off the California FAIR plan and modernize the California Department of Insurance on March 27. Californians will determine their next insurance commissioner in the general election in November.

The candidates at the forum were

• Patrick Wolff, a financial analyst
• Merritt Farren, an attorney who said he lost his home in the Palisades Fire
• Steven Bradford, a former California state senator
• California State Sen. Ben Allen, whose district includes the Pacific Palisades

Here are a few takeaways of how insurance could look different in California, according to the candidates.

Insurance contracts need to be clearer

Something people in the Pacific Palisades have experienced is the “shock” in realizing how complicated insurance contracts are, Farren said. He said these contracts are written by lawyers who don’t want policyholders to understand what’s in their contracts.

“I wouldn’t use AI to interpret the contracts,” he said, referring to another candidate’s proposal. “I’d come back with changes in the rules to make sure that the coverage can be simplified — and it can be — and that those contracts can be written in a clear way.”

Wolff said the Department of Insurance should publish an annual report that would tell Californians about the state of the insurance market relative to other states, including cost information. He also wants to give Californians information about how insurance companies handle their claims so people can grade these companies.

Risk mitigation is key. But homeowners need to know they’ll benefit

Allen said that among the factors that have “spooked” the reinsurance market in the state is, in recent years, the “massive perception of risk increase in the state.” He pointed to climate change and said that California fires have grown “more ferocious.” However, Allen said that risk reduction “is essential to the long-term stability and solvency of this market.”

He said he’s passionate about ensuring resources are allocated to firefighting, vegetation management, wildlands management, and healthy forests.

“When it comes to what is really working in terms of getting insurers to step up and insure people in high-risk areas, it’s the risk mitigation work,” he said.

“This is an opportunity for us as a state to start to shift policies and practices toward greater risk reduction and greater fire wisdom and fire resilience,” Allen said. “It's going to take a culture shift, just like they have in Florida with regards to hurricanes, what we've had to do with regards to water conservation and drought. And that's ultimately the longer-term solution.”

However, Allen said that communities and homeowners can’t be asked to do all the hard work of risk reduction if there isn’t going to be any benefit from insurers.

Also needed? A “gold standard” for what home hardening is, according to Bradford.

Group insurance. Apps for homeowners. How innovation can be used in insurance

Wolff said AI could be used to explain to policyholders what their insurance policy covers. But AI could also be used differently, according to Farren.

In response to an attendee sharing their difficulties with their insurer over the possessions they’d lost in the fire, Farren pointed to how technology could help with payouts without receipts.

“There should be no question, you should sign up for a certain amount of money, and you should get that amount of money for your personal possession for your rebuilding, period,” he said.

His idea: An app where people could use their phones to document the items in their homes and let AI total them up.

“If Farmers or whoever doesn’t agree, let them tell you right up front before they sign you up that they don’t agree,” Farren said.

Allen highlighted various technology all about risk reduction — apps that give residents a detailed report about how they can reduce their home’s risk from photos taken of their property, as well as apps that give regular reminders sent out to residents related to upcoming red flag warning days and what they can do in advance to prepare.

But talks of innovation weren’t limited to just technology.

Wolff pointed to a proposal: issuing homeowners’ insurance at the group level rather than insuring individuals.

“The advantage here is, you now create the incentive for all of the homeowners and the community to be making sure that everyone is doing the right thing,” he said. “Because one of the things that I hear, and is a big issue, is we can use lots and lots of carrots to try to incentivize homeowners to do the right thing. But if I'm doing the right thing, and they're doing the right thing, but they're not doing the right thing, we're all still at risk.”

Paris Barraza is a reporter covering Los Angeles and Southern California for the USA TODAY Network. Reach her at [email protected].