Consumer Watchdog has voiced concerns over Insurance Commissioner Ricardo Lara’s proposal to allow insurance companies to utilize private black-box models and AI to assess the risk of catastrophic wildfires. The organization asserts that this move will increase home insurance premiums without providing transparency or accountability.
Lara’s proposal lacks requirements for testing the accuracy and fairness of private models, establishing uniform standards for their application, and obtaining approval of their reliability before insurers can use them to adjust rates. It also safeguards model secrecy by requiring non-disclosure agreements from public interest organizations, public officials, and journalists seeking to examine their impact on insurance prices.
Consumer Watchdog emphasizes that California voters passed Proposition 103, which mandates insurance companies to disclose all factors affecting insurance prices. The proposal, however, violates this requirement. The organization advocates for the development of a public model accessible for public inspection.
Carmen Balber, executive director of Consumer Watchdog, expresses concerns about the confidentiality demands of black-box modelers and non-disclosure agreements. She highlights the need for regulators and independent groups to scrutinize model accuracy and share their findings with the public. Balber also urges the commissioner to demand public review of how models influence prices, review and approve their design and use, and mandate insurance companies to provide consumers and communities with practical information on reducing premiums through climate risk mitigation.
The proposal extends the use of catastrophe models beyond wildfire loss, granting the Commissioner the authority to allow their application in other areas. Consumer Watchdog emphasizes that even Florida, known for its favorable insurance industry laws, established a public hurricane catastrophe model open to public scrutiny and has an expert commission to evaluate and approve all catastrophe models used by insurance companies.
In previous testimony, Consumer Watchdog raised concerns about the inaccuracy, variability, and bias of models and stressed the necessity for model transparency. It also highlighted the financial conflicts of interest among some Wall Street catastrophe modeling companies, advocating for their exclusion from use in California.
Documents acquired under the Public Records Act reveal that the plan’s only purported consumer benefit, a commitment by home insurance companies to resume sales in risky areas, is a false promise. Insurers could still offer limited FAIR Plan-equivalent policies, providing no significant advantage for consumers.
Consumer Watchdog advocates for requiring insurance companies to provide coverage to all homeowners who meet state wildfire risk reduction standards, including home hardening and vegetation removal. Companies that refuse should face a five-year ban from the home and auto insurance markets.
