Palm Desert City Council - Study Session, March 13, 2025

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[00:04:26] Mayor: Good afternoon, both of you. We're here for our study session on Thursday, March 13, 3:30. So, how should we get started?
[00:04:42] Staff: Madame Mayor, I'll have the record reflect that all council members are present, and we have only one topic today, which is a presentation by the California Department of Insurance. And we have Judith Pina, who's an outreach analyst, and she'll be providing the presentation.
[00:04:57] Mayor: Great, thank you.
[00:05:05] Speaker 1: Hi Judith, you can take over.
[00:05:07] Judith: Okay, hello everyone. Thank you for having me. My name is Judith Paa and, as mentioned, I am an Outreach Analyst at the California Department of Insurance, also known as TBI. And today, I will talk about challenges in the insurance market and solutions being implemented.
[00:05:25] Speaker 2: Can we... One moment. It's... You're a little difficult to understand. I'm not sure if maybe you're too close to the microphone, but I'm seeing lots of quizzical looks on faces, so help us.
[00:05:37] Judith: Okay, I will. I've had this issue before, so I will try to speak louder and clearer, and if it continues, please let me know.
[00:05:46] Speaker 2: Okay, it's not necessarily louder. You're loud enough, but maybe back away a little bit so we can understand a little. Thank you.
[00:05:53] Judith: And if I go a little too fast, please also let me know. Okay, next slide, please. Okay, we all know the insurance market is under stress. Okay, this is due to natural disasters, global inflation. This isn't just happening here; every state is facing similar challenges. This is due to increasing climate change risk, historic inflation, rapid growth of the FAIR Plan. The FAIR Plan is growing quickly, offering fewer options and higher cost for homeowners, unfortunately. So, despite multiple rate increases being approved by the department, several insurers have stopped writing new policies and are non-renewing existing ones, unfortunately. What a home cost 10 years ago, or the rebuilding, is not the same—the cost is not the same as it is now. So, next slide, please. Proposition 103. So, what is Proposition 103? Proposition 103 passed in 1988, and this requires insurers to get approval by the Insurance Commissioner before changing rates. These insurance rates are fair, they're non-discriminatory, and not excessive. California is the only state where the public can actually participate in the review, in the rate review process. Next, please. Excuse me. Okay, so current rate review process: rate applications must be reviewed within 180 days. Okay, the department must approve or deny rate applications within this time frame. That was...
[00:07:38] Speaker 3: I just want to verify, because in the presentation that was printed, it says 'must approve'. I think you just clarified basically 'must make a decision' is more accurate. They don't have to approve it after six months.
[00:07:52] Judith: Yes, thank you. Thank you for catching. Yes, it must be approved or... yeah, must approve or deny rate applications within this time frame. My apologies. Okay, however, there are delays, and these delays are largely due to insurers not submitting—sorry, not submitting complete applications. Another one is intervenor delays, outdated technologies, and staffing. So, in the past, insurers were submitting applications that were not complete. Moving forward, applications must be complete before submitting to the department for rate... So, currently, the department also has been hiring additional staff to meet the needs. Also, we are expanding hours—I believe we are 96 now—and also our 1-800 number is also open on the weekends now. So, also new regulations for clear and more efficient filing, and increased transparency for public review. Next slide, please. Yes, the Sustainable Insurance Strategy. Okay, the Governor's executive order last September pushed the Commissioner to fast-track regulatory solutions. CDI launched the Sustainable Insurance Strategy, also known as SIS, to modernize the insurance market. For folks who are not aware, insurance regulations and mandates had not been updated in over two decades. So, the key action here is to increase insurance availability in wildfire-prone areas. So, this is for faster rate approvals to stabilize the market, new risk management tools like catastrophe modeling and reinsurance costs—and we'll talk about that, I'll talk about that later in these upcoming slides—and ensure commitment to write more policies in high-risk areas. So, this is a historic agreement between the Insurance Commissioner and insurance companies. This is strengthening the FAIR Plan, reduces reliance on it, and helps close the insurance gap. This strategy aims to stabilize the market through reforms and new risk...
[00:10:00] Speaker: management tools. The goal here is for faster rate approvals, fair pricing, increased insurer participation, and also strengthening the FAIR Plan for those who still have to rely on that. Okay, so next slide, please. Okay, California consumers benefit with insurance increasing writing. Okay, so new regulations equal better consumer protections. California is making policy changes that encourage insurers to stay while also ensuring fair protection for homeowners. This includes new models that take wildfire risk reductions into account, which they don't now. Also, more insurance availability means fewer homes are relying on the FAIR Plan, which was meant as the last resort, not like the first—not the first resort as many are using it now. So expanding coverage options leads to better rates and better coverage for everyone. Okay, next slide, please.
[00:11:06] Speaker: Catastrophe modeling. Okay, so catastrophe—why is it needed? So, traditional risk assessments rely on past losses, which don't account for climate change or wildfire mitigation efforts. Catastrophe models improve risk prediction and ensure rates reflect actual risk. California risk only—California had to develop regulations to allow the use of catastrophe modeling and ratemaking while meeting Proposition 103's mandate for public review and transparency. The goal here is to balance accuracy in pricing and fairness to consumers, and these models help better assess risk at the parcel and community level. Using catastrophe models will allow for a more granular, granular look on property, not just by ZIP code. Yeah, so it'll, it'll assess in a more granular way. So insurers will be expected to write more policies in high-risk areas before using these models. So that, that is part of the commitment between the Insurance Commissioner and insurance companies when using the catastrophe models and reinsurance. They are expected to write new policies—sorry, 85% of their new policies in high-risk areas. Sorry about that. Okay, next slide, please.
[00:12:36] Speaker: Okay, so reinsurance or ratemaking. So what is reinsurance? Insurers pay to protect themselves from large-scale disasters, so it's insurance for insurance companies. And why this matters: reinsurance costs are rising due to climate change disasters affecting insurers' ability to provide coverage. So it's getting harder and costlier for insurance companies to get reinsurance. And the solution here is allowing insurers to factor California-specific reinsurance costs into rates, ensuring this leads to increased availability of insurance, not just higher prices. And so, other states are already factoring reinsurance costs into rates. I believe California is the only state that does not do that. Next slide, please.
[00:13:25] Speaker: The FAIR Plan, the lovely FAIR Plan. Okay, so the FAIR Plan was designed as a last resort, but like I mentioned earlier, it is the only option for many homeowners now. It's higher cost for less coverage. So the commissioner expanded some coverage limits. Previously, the FAIR Plan had low coverage limits that did not reflect the true cost of rebuilding after disasters. A new $20 million per structure limit has been introduced for larger commercial properties, such as HOAs and businesses. This will change and allow essential community housing developments to get adequate insurance. The FAIR Plan is being expanded to provide better coverage while ensuring financial stability at the same time. We are working to bring insurers back into the traditional market so fewer Californians need to rely on the FAIR Plan. Next slide, please.
[00:14:22] Speaker: So what's next? A helping homeowners 'Safer from Wildfires' framework provides guidance on mitigation steps to improve insurability, which is what we are working on right now. We want to make sure that people, the consumers, have access to insurance. Industry changes include insurance companies submitting new rate applications using improved risk assessment tools. Catastrophe models—there are two catastrophe models that are being reviewed at the moment. So insurance companies, I want to say, before it...
[00:15:00] Presenter: ...says 2025 that we are expect to see insurance companies write new policies mid-2025. Unfortunately, the fires backtracked us a little, and I want to say maybe the end of 2025 or the beginning of 2026. Next slide, please. So here is our partner. Okay, so this is our community outreach and Community Education partnership initiative. This aims here to expand consumers' awareness of CDI services. We have training sessions and educational webinars that happen the last Friday of every month. I believe our next one is on March 28th, and you can sign up by taking a picture of this QR code. Next slide, please. Okay, so this one, this is local climate initiative. So plan—sorry, we also have our local climate planning initiative. This here aims to help local governments and communities adapt to climate risk. We offer a 10-page planning guide and flyers, and we also have a webinar series. The first one was on February 26th, and the next one will be on April the 9th. Again, you can also sign up here, taking a picture of this QR code here. And next slide, please. If you have any questions, whatever the—whatever your question or needs are, please call our 1-800 number here. You will get a specialist that can answer your question to your specific need. Yeah, so 1-800 number. You can also find a lot of information on our website, www.insurance.ca.gov. And if you have any—you can also contact me. Okay, that concludes my presentation.
[00:17:02] Mayor / Chair: Okay, thank you. Do any of the colleagues have any comments or questions? Oh, you do. Go, please.
[00:17:10] Gina Nandy: Hi, Gina Nandy on the Palm Desert City Council. In one of your first slides, you mentioned outdated regulations as being part of the issue. Are you referring to State environmental regulations such as water management and vegetation management, forest—you know, the trees and the forest, etc.? Is any of this included?
[00:17:37] Presenter: No. So moving forward, it will be taking a time, but past regulations—meaning that rate-making, we're using old data. So that's why we're moving into using catastrophe modeling, which other states use, to predict future catastrophe.
[00:18:00] Gina Nandy: Okay. Is there any collaboration between the insurance industry and the State of California and its environmental policies? I believe the LA fires shined a light on some of the major issues that are helping fan the flames of these fires, that being lack of water and overgrown vegetation.
[00:18:24] Presenter: So my—my understanding, talking to Cal Fire, was that it wasn't lack of water, it was water pressure, but don't quote me on that. That's what they've mentioned. And so when the commissioner came up with the Sustainable Insurance Strategy, this was discussed with Cal Fire, local organizations, local government, and this has been in the plan since 2019. So this is nothing that was just started from scratch. It's been in the works since 2019. And like I mentioned, this was coming—the Sustainable Insurance Strategy came up after meeting with local organizations, the community. Yeah.
[00:19:11] Gina Nandy: Yeah, okay. Thank you.
[00:19:18] Council Member: Yes, thank you. My question is in regards to Prop 103. You mentioned that there has to be public input in order to do so. The slides that I see here show engagement opportunities through the climate planning initiative. How does the community get involved? It says here there's planning guides, but where do you post it and how do we share information on that?
[00:19:45] Presenter: Okay, so Proposition 103—good question. I don't know how the public gets, but I can get that information and get that to you, if that works.
[00:19:57] Council Member: So perfect, yeah. Yeah, I hope it's...
[00:20:00] Speaker 1: In the webinars as we mentioned. Thank you. Okay, awesome. Oh, but if it's not, regardless, I will go ahead and send it. Um, I will go ahead and send it over, how you get involved and how you look up that information. Are there any other questions or comments? No? Okay, we see none.
[00:20:29] Speaker 2: I believe that I heard a conversation that as a result of California having done this, that there are, um, rather than engaging in the additional regulations that are laid forth in, in, um, this plan, that there are some companies that are just leaving California altogether. So even if the state has higher, um, intentions, even if there are great intentions and want to have all these support plans, how is the state making an effort to keep companies insuring in California instead of leaving and saying, 'No, thanks'?
[00:21:08] Speaker 1: So, they are not leaving. They're just stopping to write policies. Like I mentioned, this is not just happening here in California. It doesn't help to hear this, but this is not just happening in California. Every state is experiencing, um, issues with this. So, the commissioner met with CEOs with insurance companies. They don't want to leave California. They can't. So, the commitment is with the insurance companies. Using, uh, the catastrophe modeling and reinsurance cost to the consumer, they have committed to start writing new policies. We, like I mentioned, we would say 2025. Unfortunately, um, these fires backtracked our department, and now we are saying end of 2025 or beginning of New Year. So, they are... insurance companies have publicly committed to start once they start using the catastrophe modeling and reinsurance cost to the consumer, they have committed to start writing new policies in California, with 85% of them being in high-risk areas. Smaller, smaller insurance companies don't have to, but they have to prove and show their books that they cannot afford to do that.
[00:22:18] Speaker 2: Thank you.
[00:22:26] Speaker 1: You're welcome. Is there anything else?
[00:22:28] Speaker 2: No, that's it. Thank you so much for your time today.
[00:22:31] Speaker 1: You're welcome. And I will send the information regarding the prop notion to, uh, Mr. Mejia.
[00:22:41] Speaker 2: Okay, thank you.
[00:22:42] Speaker 1: Okay, all right. Okay, thank you.
[00:22:50] Speaker 3: Okay, so we'll reconvene in 10 minutes.