Decs&Excs previously reported on the Court of Appeal's rejection of California Insurance Commissioner John Garamendi's attempts to prohibit so-called "Use It and Lose It" underwriting, in which insurers writing homeowners policies refuse to renew based upon the insured having made, or having inquired about making, a claim. The Court found that, whether or not they were directed to a laudable goal, the regulations exceeded the Department's authority under the Insurance Code.
I predicted at the time that this was a battle from which the Commissioner would not voluntarily retire, and now he has proven that prediction correct. In a pair of near-identical Press Releases -- one on April 14 and another today -- he has announced new proposed regulations to address the disputed practices.
The text of the proposed regulations has not yet appeared on-line. Decs&Excs will provide a link to them when they eventually turn up in linkable form. As described in the Press Releases, the new regulations would require:
- That insurers provide details on any information from a CLUE or A-Plus database report that has been used reject an application for insurance.
- That insurers inform potential policyholders of any and all excluded coverages.
- That insurers provide notification of any changes to rating or underwriting guidelines - before such changes takes effect - that may have a negative impact on the policyholder should the policyholder make a claim.
- That insurers take reasonable steps to verify claims history database information used to rate policies.
- That insurers file with the Commissioner, on an annual basis, a report detailing the "who, what, and where" of occasions when insurers apply use it and lose underwriting or deny eligibility where the potential insured has made a claim in the past.
Having been told by the Court that he has no power to prohibit these practices outright, and apparently having no confidence that Governor Schwarzenegger would sign any legislation granting him that power, the Commissioner is adopting an indirect, "Rube Goldberg with a Big Stick," approach to the problem. He now proposes to require insurers to disclose the offensive practices to their insureds, apparently on the theory that the insurers will change their ways rather than admit to them. He also seems to intend that the sheer burden of compliance, particularly with the proposed reporting requirements, should outweigh the perceived benefit to insurers of continuing their current practices.
More to come . . .
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Related Calendar Note: I will be commenting on this topic and on other recent developments in California insurance law on May 10, when I will be the speaker at the monthly lunch meeting of the Los Angeles Chapter of the CPCU [Chartered Property Casualty Underwriters] Society. If you might be interested in attending, please drop an e-mail in my direction for details.
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UPDATE [4/22/05]: If you don't read the comments to this post, you will miss the link from Bob Sargent of Hartford, Connecticut's Tennant Risk Services to a post on his new Specialty Insurance Blog (which I have also added in the sidebar) compiling his own thoughts and providing a number of links to relevant comment by others (including the typically perceptive Martin Grace at RiskProf) on these issues.
Now, if I could only track down an actual copy of those proposed regs . . . .
This will be an interesting process. Will the Commissioner be able to get what he wants by the back door? Not only is the need in question, but there may be unintended consequences. I have some comments on my site as well.
Posted by: Bob Sargent | April 22, 2005 at 08:12 AM