Last week, California Gov. Gavin Newsom announced the latest set of measures in an effort to lower the huge budget deficit the state faces. What was expected to be a more than $70 billion budget deficit, a result of inappropriate spending in the last few years, is “only” going to be a deficit of just under $28 million under Newsom’s latest plan, which includes enforcing dozens of unpopular measures, including cutting tax deductions, cutting spending, and killing many projects and grants previously announced by Newsom and his administration. “We have to be responsible. We have to be accountable,” Newsom said Friday while announcing the latest plan.
Spending cuts amid other serious problems
Newsom’s announcement to tackle the state’s huge budget deficit comes at a time when the state faces several other serious crises. The inflation and raising prices that have been around for a while were further worsened by the influx of illegal immigrants at the southern border, which not only requires more state resources but also has a financial impact on southern border cities and areas, directly affecting local residents’ lives for months. On top of that, the Newsom administration is in the middle of the nation’s worst house insurance crisis, with a growing number of companies leaving the California market due to profitability issues.
The house insurance crisis explained
Due to severe wildfires that are becoming more frequent and devastating in California, a growing number of large insurance companies are leaving the market or limiting their operations in recent times. Earlier this year, American National, based in Texas, announced it’s going to stop selling home insurance by this coming autumn and will let their customers know they won’t renew their policies starting in August. A few weeks later, State Farm General announced through a press release that it’s not going to renew the insurance for more than 70,000 private and business entities, further worsening the insurance crisis. These latest moves forced California leadership to finally address the house insurance meltdown and get their hands on the issue.
A tricky solution on the horizon
Governor Gavin Newsom announced on Friday a plan to speed up the approval process for insurance rate hikes, a crucial change insurers claim is necessary to survive the rising costs of numerous claims in California. These claims are increasingly due to wildfires and other effects of climate change. Newsom said he is drafting a “trailer bill” to reduce the approval process to 60 days. He hopes this will stop insurers from leaving California and calm residents’ fears about canceled policies.
Higher prices more quickly
Currently, the Department of Insurance has up to 84 days to approve rate increase filings, but this process can take much longer if a public hearing is requested by consumer advocates or other groups.
“We need to stabilize this market,” Newsom said during a Friday press conference about his revised budget proposal. “We need to send the right signals, we need to move.”
While this change might lead to higher bills for consumers in the short term, supporters argue it will make home insurance more accessible. More options could help residents avoid relying on California’s “FAIR Plan,” the state’s “insurer of last resort,” which has very high premiums and is nearing insolvency.
Changing three-decades old rules
California Insurance Commissioner Ricardo Lara began collaborating with Newsom last fall to modernize and revamp three decades of state regulations. These efforts include allowing insurers to use catastrophe models to set rates and charging consumers for reinsurance costs, which is insurance for insurers. In a statement posted on X (formerly Twitter), Lara thanked Newsom for his commitment to providing the support and resources needed for the Department of Insurance staff working to stabilize the market
However, this ongoing work isn’t expected to take effect until December, which is too slow for Newsom. If his bill is included in the 2024-25 state budget, it could be implemented as early as July 1.
Praising the changes
Denni Ritter, the American Property Casualty Insurance Association’s department vice president for state government relations, praised the news about expedited approvals Friday afternoon.
“We appreciate the Governor highlighting this critical issue,” stated Denni Ritter, APCIA department vice president for state government relations. “Expediting the rate review process is a vital component to addressing California’s insurance crisis. We look forward to working with the Administration, Legislature and Department of Insurance on this crucial reform and other reforms necessary to fix our broken regulatory system and increase the availability of insurance for California homeowners, drivers, and businesses.”
