Business Law

INSURANCE REGULATORY REPORT

The following regulatory information may be of interest to attorneys practicing insurance law.

Increased Enforcement of various provisions of Proposition 103

On Nov. 25, 2024, the CDI published Bulletin 2024-14 “Compliance with various provisions of Proposition 103” which addresses several issues that have arisen regarding insurer compliance with Proposition 103. The bulletin asserts that:

  • An admitted property/casualty insurer remains responsible to charge the lowest premium for which the insured qualifies; the insurer cannot pass on this responsibility to its agents, no matter how many different programs may be underwritten by several managing general agents;
  • If an insurer submits a subsequent prior approval rate application while a previously filed rate application for the same line, program or product is either under review or approved and not yet in effect, the CDI must provide public notice of the proposed aggregate rate change;
  • 10 Cal. Code Regs. Section 2662.6(d) permits intervenor awards to be recouped as an expense of a rate applicant for the purpose of “Establishing rates” and “as a dollar-for-dollar adjustment to rates;”
  • As part of the rate application, insurers must disclose credit card convenience fees that are paid by policyholders;
  • 10 Cal. Code Regs. Section 2644.12 defines distribution systems for purposes of the efficiency standard and the CDI’s annual insurance marketing survey;
  • Because group insurance plans can sometimes be classified as personal lines and sometimes classified as commercial lines, the insurance product should be classified appropriately;
  • Portable electronics insurance plans, which are group insurance plans, must have specifically defined periods for initial and renewal terms; and
  • Mitigation disclosures must identify the premium reduction associated with each mandatory mitigation measure completed by the insured.

Catastrophe Modeling and Ratemaking Regulations Become Effective

On Dec. 12, 2024, the CDI announced that it had published its finalized Catastrophe Modeling and Ratemaking regulation, effective immediately, which enables insurers who write increased amounts of homeowners policies in high-risk areas to use catastrophe modeling in calculating property and casualty insurance rates. The regulations had been previously workshopped in June, exposed for comment in September, and finalized text was released in November. In order to engage in catastrophe modeling, an insurer must submit model information as part of its rate application to the CDI’s newly appointed model advisor, Kara Voss, who shall issue a pre-application required information determination (“PRID”) laying out all required model information needed for the complete rate application. The CDI began accepting PRID petitions on January 2, 2025. Additionally, Cal Poly Humboldt is leading a strategy group of researchers and education leaders to develop a public catastrophe model, who will make recommendations to Commissioner Lara in April 2025.

This e-Bulletin was prepared by Nicole Zayac, Counsel in the San Francisco office of Willkie Farr & Gallagher LLP (nzayac@willkie.com). Ms. Zayac is a member of the Executive Committee of the California Lawyers Association Business Law Section and is the current Liaison to and past Chair of the Insurance Law Standing Committee.


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