April 29, 2024 • 38 mins
In this eye-opening episode of "Up2Speed", we engage with Mike D'Arelli, the Executive Director of the American Agents Alliance. With his profound knowledge of independent property and casualty insurance agents, Mike provides a comprehensive overview of the insurance industry and sheds light on challenges within the agents' alliance. Explore the issues bogging down the auto and home insurance markets in California and understand the influence of inflation, supply chain disruptions, and inadequate rates on companies.
Mike discusses the imperative for increased efficiency, quick rate approvals, and more responsive regulations from the Department of Insurance. He also talks about the role of companies like State Farm and Fair Plan in the Californian property market, urging for a reinvestment in the private market and the need for efficient rate adjustments.
Expect a fascinating and insightful discussion on California's skyrocketing wildfire threats and how these risk exposures pose a potential economic meltdown in the industry. Mike offers feasible solutions to overcome the present market crisis, making this episode a must-listen for those interested in the intricacies of the insurance industry.
Uncover in-depth data on consumer awareness, regulatory controls, and the need for expansion of rate approval amidst this tumultuous period. This conversation emphasizes the importance of price adjustments, strategic risk management, structural changes, and collective effort in resolving California's insurance challenges.
The episode further explores the potential of the E&S market in delivering affordable insurance premiums and the need to adapt to changing legislation. It concludes on a hopeful note with discussions about the American Agents Alliance Conference. Tune in for a holistic understanding of the insurance industry, its challenges, and viable solutions.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
All right. We've got a good one here on Up to Speed today. I am joined with
a dear friend of mine, Mr.
Mike Diarelli, who is the Executive Director of the American Agents Alliance.
This is the guy that knows what's going on out there. And we have so much to
talk about today. So Mike, thanks for joining us.
Thank you, Samantha. Looking forward to it. I appreciate the opportunity.
(00:22):
You're just, you're an icon in the industry. So we are just thrilled.
So first and foremost, for those of our listeners that don't know what the Agents
Alliance is, can you just give us a real quick high level on what it is?
Yes. The American Agents Alliance is a association, a national association of
independent property and casualty insurance agents.
(00:43):
So we represent independent agents nationally, and we've gotten our roots established
here in California, and we've been here since 1962.
We went more national probably 15 years ago, I would say.
Just because we've got a fantastic errors and omissions program and we had agents
(01:05):
coming in from Texas and Florida, New York, and we started serving them with product and that was it.
So we've got a long, rich history and we serve agents and brokers.
In the best way possible, possible providing education, providing,
you know, mentorship, providing in just information.
I think for so many of us, there's, there's not a lot of, I mean,
(01:26):
there's a lot of places to go, but there's not a lot of places to go where you
can get a lot of it in a big capacity.
So what you're doing, and for those that aren't members, you definitely should
look into the program. The ENO part alone is worth it.
And, you know, in addition to that, there's a lot of knowledge that you guys
have on your side, because you are keeping up with all the things that are going
(01:47):
on in this wild insurance industry that we are really experiencing here in California,
but really nationwide and globally, if we really want to unpeel all the onion.
So I would like to just buckle up.
Just put the pedal down and let's go. What is happening out there? Like, what is going on?
(02:10):
You know, I had my own agency 30 years ago.
And so I've been in this space for a long time. And I can tell you,
I have never seen sort of a seized up market as we have here in California,
particularly, but some of the things we're seeing nationally,
but specific to California, California
(02:30):
the home and auto market
are just a hot mess and most
of it really sort of came to a head when our
insurance commissioner Ricardo Lara decided that he
was going to put a moratorium on any
new rate increases particularly for auto insurance I think consumer watchdog
(02:53):
some of the consumer groups had convinced the commissioner that carriers needed
to refund about $3 billion to consumers after COVID.
The consumer groups felt that carriers had unduly enriched themselves when people
were at home, they weren't driving.
If they were driving, it was a couple thousand miles a year,
(03:14):
and everybody's working from home in their slippers and jammies sort of thing.
And carriers, all of whom handled their policyholders the way they saw fit,
which was, you know, some companies did nothing, some refunded premiums,
some gave credits, but everybody dealt with their policyholders the best way
they thought possible under the circumstances.
(03:37):
Nonetheless, it wasn't good enough for the consumer groups. The department listened
to the consumer groups and said, okay, well, if you guys aren't going to refund
more money to consumers, then we're going to get that money one way or another,
and we're just not going going to approve rate increases.
And so for 30 months, they approved no rate increases for auto insurers.
And meanwhile, inflation was running rampant.
(04:00):
We all know everything at the grocery store, hardware store,
you name it, it got more expensive and auto parts and supply chain issues were not exempt.
It went from bad to worse.
And companies have been operating with inadequate rates.
And for every dollar of premium they were collecting, they were spending more
(04:24):
than that on claims and expenses and the rest of it.
So when you're in a whole stop digging, a lot of companies just told me,
we can deploy capital more efficiently somewhere else. Economics 101,
capital will fly to the place where it's most efficiently deployed.
And so So companies really started limiting their exposure here.
(04:46):
And one by one, it's like a bad Agatha Christie novel, you know,
and then there were how many sitting at the table? Not many.
We have our own agency at the association to serve members, more of a wholesale operation.
We don't deal with the retail public, but all of our markets,
Ravelers, Safeco, even Progressive, Mercury.
(05:09):
Mercury's been the best. Mercury never shut down. I will tell you,
the department has taken shots at them over the years, but they are dedicated to the producers.
And Progressive as well, to a lesser extent, they've been very good.
But I'll tell you, the big national preferred markets, Safeco Travelers, not so much.
They were, particularly Travelers, was the first to pull that rope ladder back
(05:33):
into the helicopter and fly away.
So that sort of precipitated, you know, what we're now seeing with home.
Home is a little more complicated, I think, by national catastrophe issues that
are affecting other states as well.
But in California, carriers have long been dealing with Proposition 103 since 1988,
(05:54):
and it's created a very hostile adversarial relationship between carriers and
the department as companies need to file for rate approval.
And the department has weaponized this rate-making process.
Proposition 103 has created an intervention right for Consumer Watchdog.
(06:17):
And when companies file for rates, particularly when they're over 7%,
there's an intervention right.
And Consumer Watchdog typically intervenes, runs up a big bill,
flows down the process, acting on behalf of consumers.
And it's increased time and expense for carriers to get rate approvals.
(06:39):
You'll apply for a 25% rate.
The department will sit on the filing for a little bit. They'll get back to
you and say, I think we can get you 15.
Then Harvey Rosenfield at Consumer Watchdog intervenes and crams the rate request
down maybe to eight or nine or 10.
And then slides you, the carrier, a bill for $500,000 to $5 million that you have to pay.
(07:01):
Thank you very much. So that kind of came to a head with this rate moratorium
that the commissioner is solely responsible for, by the way.
Just kind of played a game of chicken with the carriers. And now the carriers
really have all the power.
I mean, they have sort of taken their toys, left the playground. ground
(07:21):
and now it's sort of incumbent on the
department to induce companies to get
back in the game the auto pieces eat the department just needs to get more efficient
the department needs to fast track we've been calling for a fast track quicker
rate approval process for auto the home there are regulations now that are moving
(07:43):
finally a deal was killed in the legislature last year.
To fix it. But there's no sense of urgency at the department. It's really shocking.
That's... Yeah. It's like a bottleneck almost. It feels like...
Just in the last six, eight weeks or so, you have March 24, the state farm debacle
with them pulling out of the California property market, essentially with 72,000
(08:04):
home and apartment building policies, they're non-renewing, which are...
I just got off the phone with a client who'd been with them for 50 years.
And here's this little old guy from Encino and he's up in the hills and he's
just like, what am I going to do?
I mean, I'm too old to even rebuild my house, but I can't afford to pay $30,000
because that's what it's going to cost him now.
(08:26):
Then we have, you know, March 24, the fair plan talking about their 375,000
policyholders, their total risk exposure being $311 billion.
And 2018, that was $50 billion. So that's a whole nother crazy thing.
Because even when I sat in the seat at your session back in September,
(08:49):
with the Fair Plan lead, they aren't in a situation where they've got capacity
to take care of this if there's a problem.
They're adding $10 billion a month to their over $300 billion exposure,
and they've We've got $2 billion in the bank.
And so carriers rightfully are scared to death.
(09:11):
And when they're making a decision whether to stay in this homeowner's market or stop and get out,
this is a big part of the decision because every carrier is responsible for
their share of fair plan losses.
Now, the fair plan, for some of your listeners, it's 100% industry money.
(09:33):
There's no government money, there's nothing in it except industry support based
on your market share of homeowner's business in the state.
If there's a cigarette butt flicked out the window in Big Bear,
which the plan is, the fair plan is so highly concentrated in some of these
hot parts of the state that I am telling you, it is really scary.
(09:57):
We are one fire away from DEFCON 3 total meltdown.
And regulators seem to think that, and lawmakers to some extent,
that these carriers just, they turn the money handle and the money just comes
out of the machine. And carriers, even State Farm has demonstrated that even
their capacity is limited.
And what happens is carriers are making decisions to exit the California homeowners
(10:23):
market based on their exposure to the fair plan and a possible assessment.
And it's statistically going to happen. Yeah, it's it's, you know,
and poor Victoria Roach, the president, CEO over at the Fair Plan.
She's like a like a snake that swallowed a deer. You know, she's trying to do the best she can.
(10:44):
And but she's she's got a thousand policies a month coming in.
She can't staff up fast enough.
They can't answer phone calls fast enough. They can't return emails.
They've got this tech rollout that has been just a real disaster.
But the old system wouldn't have handled this.
So they had planned to do this at the end of last year because it's typically
a slower part of the season of the year.
(11:06):
And it just happened to be, you know, the worst time to do it.
And it's just a confluence of bad things.
And that fair plan could really.
Be a cataclysmic event if we have a major buyer.
Yeah, I saw in the news this morning that they were planning for a rate increase,
(11:28):
which I mean, they are priced, they're not an ideal price component,
but they're also typically have always been the carrier of last resort.
Now the only resort in a lot of ways, or spend $60,000 a year, Mr.
Living in Encino, you know, with your 1800 hundred square foot house.
I mean, it's just it's it's crazy.
And I also wonder, too, if people can't get insurance, what's that going to
(11:49):
do to the mortgage banking industry?
I mean, it just is a snowball effect. It's a chain reaction of bad things.
In the hearing, the Fair Plan Oversight hearing in the Assembly Insurance Committee
a few weeks ago, I testified in there and the statement was made by Victoria Roach.
Coach, she said, we needed a 70% rate increase.
(12:14):
We filed for 48, and we ended up getting 15.
And it took us 25 months to get it. And when I went up, I said,
you all want to know what the problem is?
I said, this is exhibit A. Okay, this is the market of last resort,
which is now the market of first resort.
Okay, we're all going to end up being insured by the fair plan pretty soon If
we don't play our cards right here, that's the problem.
(12:35):
OK, this critical program can't even get rate adequate.
Right. Even this program has inadequate rate right now.
And so it's not realistic to ask companies or the fair plan, quite frankly.
To continue to digest all of this exposure when they're not properly funded.
(12:59):
And so insurers are really nervous about this.
And by statute, that fare plan has to be depopulated of policies.
And so I told lawmakers, I said, you can't depopulate the fare plan until you
have another lily pad to put these policies on.
And that lily pad is the private market. And so when tail carriers get adequate rate,
(13:24):
you know, they don't want to come in and pull out 25,000 or 50,000 policies
and start transitioning these policies back to the proper marketplace.
Which is the private market. Sure.
And in the private market, going back to that rate, you know,
consumers only know what they see on the news, what they read in the paper.
And, you know, a lot of the information a lot of times isn't necessarily it's,
(13:46):
you know, the world's on fire.
Recently, they said that the state farm had been downgraded to a B paper.
Well, in reality, it was a very small sector of state farm.
But, you know, everyone there thinks, oh, my God, they're not financially sound anymore. more.
And, you know, paying $800 a year for $750,000 in coverage, I mean,
people were way underpaying and have been for years on not only property policies,
(14:11):
but business insurance, commercial.
I mean, they've been not paying what they should have been paying for a long
time because of these, you know, consumer watchdog efforts that were trying
to help people, but in reality was creating, I think, a bigger problem.
Well, you know, it's interesting.
The consumer doesn't really know that companies can't just charge what they want.
(14:31):
They don't really understand how highly regulated our business is.
And companies have to get their rates approved.
And they have to prove up their rate requests with a five foot high stack of
regression analysis and actuarial data that is mind numbing. It's all math. And.
You know, the efficiency of the department is just really lacking,
(14:54):
and it just really all came to a head in this perfect storm.
It was really, thankfully, the State Farm situation that has gotten the attention
of the department, news outlets.
My phone started blowing up with phone calls from media who started taking things more seriously.
And the department had previously kind of poo-pooed it. And,
(15:18):
well, there's over 100 insurers on the home side.
You know, even if State Farm leaves the marketplace, you know,
farmers and these other companies are going to step up and absorb it.
And after one month, even farmers said, I'm out.
You know, we aren't going to do this. We are going to cap our monthly number
of policies to 7000, which is what it was before State Farm left the market. it.
(15:44):
And they're hitting that number earlier and earlier every month.
And then they just don't take any more home business, but it's,
it's a bad situation, you know, and it's, it's really the department's problem.
They created a lot of this and either way, you know, the commissioner is supposed
to lead, you know, California sneezes, the rest of the country catches a cold,
(16:06):
you know, we're supposed to be leading, not following.
And other States are able to use risk modeling to establish wildfire rates.
They're able to expense their reinsurance costs, which have not been allowed
in California for home purposes, although it is allowed in California for earthquake purposes.
(16:30):
You can use risk modeling and you can expense your reinsurance costs.
But we're the last state and nation to allow companies to do this.
We want to induce companies to take risks. We want them to go into Big Bear.
We want them to go into Lake Tahoe, into these places.
And these companies employ super smart mathematicians and statisticians and
(16:53):
actuaries to run the numbers and to make determinations about what's that tipping
point between risk and premium where we can go into an area and make money.
And the law does not allow them to use risk modeling.
So you have to look at the last 20 years of premiums and losses in an area.
So we're looking in the rearview mirror, you know, to determine what premiums
(17:16):
are going to be, you know, through the windshield.
And finally, the department has found religion and they're moving a set of regulations
in this sustainable insurance program that Ricardo Lara is finally getting behind.
But no sense of urgency, Samantha. Yeah, no sense of urgency.
(17:36):
We were talking about this before the end of the legislative session in September,
and we were really pressuring people.
The commissioner to move with urgency, some sense of urgency,
for goodness sakes, Rome is burning.
And he's walking this thing as slowly
as possible. And it's really been frustrating and still slow walk it.
(18:00):
Well, and I think it's frustrating, you know, when you do see the,
you know, the things come out that these things are in the pipeline and,
and it's like, you know, we're all sitting here going, okay,
you know, the consumers are struggling because they don't understand.
And then you have agents that are, you know, This is their livelihood. This is their living.
And when I was with your group, you had a room full of people that were angry and frustrated.
(18:24):
And yes, they're trying new ways and pivoting in this direction and doing these things.
But these are seasoned people that have been in the industry for 30, 40, 50 years.
And they're having to just reinvent and recreate for a reason that I think we
could have not avoided, but at least got in front of and tried to make it a
little bit different. had things, you know, maybe had a little bit more speed to them.
(18:48):
It's, you know, we, the ones that sit kneecap to kneecap with consumers every day.
I mean, agents are perfectly positioned. And when I meet with lawmakers or testify,
I, I don't make it about the agent because lawmakers think that agents are all
rich and, you know, they don't And so I keep focus on the consumer.
(19:12):
And I have never heard from so many agents so upset, I mean,
in tears, unable to help the customer.
And I've got members, I won't use names, but people we both know who have very
established agencies, and third generation agency owners. homeowners, and they are so angry.
(19:34):
And they say, Mike, it's not about the money because my PIF count may be dropping,
but I'm getting more premium.
It's about not being able to help my customer.
They're in my office, they're in tears, and I've got nothing for them.
One of my members has, he said, Mike, I've got 10, at least 10 homeowners with
(19:55):
homes over a million dollars, and they have no insurance. They're going bare.
And it's really, it's crazy. It's, you know, it's.
And I mean, we're trying to make the market be difficult too,
not only on the personal line side. I mean, cause I primarily commercial property is my gig.
And it's like, number one markets, the commercial carries and the surplus lines.
(20:15):
I mean, they're writing business.
They're charging three, four, five X cause they can, but also just the turnaround time.
And just the, I mean the whole industry, I don't know if it shifted a lot during
COVID too, just the methodology of the, how we're doing business from the carrier
side to the independent or the agent side, it's all weird.
It's very unsettling, if you will.
(20:39):
Yeah, I think the cheese has definitely moved. It's funny, we had the author
of that book come to our convention years ago to do a keynote, probably 15 years ago.
The cheese is moving. Basically, business is changing. Get ahead of it. Stay ahead of it.
You know, go to where the puck is going to be sort of thing.
(21:00):
And, you know, you feel the influence of insure tech companies and COVID has
changed things forever, you know, for better or for worse.
We're never going back to the way that it was.
And i think there are some good things that probably came out
some not so good things but it's just definitely different and
(21:23):
you can feel it it's palpable this is still a great business and there's tons
of great opportunity but it's dispiriting when the regulator is really part
of the problem and i'm not anti-regulation because i think if left to our own devices Businesses,
companies, they would overreach.
(21:43):
Regulation should be, however, that grease that keeps the wheels of commerce grinding.
Make sure companies remain solvent. We want competition, but there is this unbelievable
distrust of carriers by the department.
The department just doesn't trust insurers at all.
(22:06):
They wouldn't let them use expense their reinsurance costs because,
well, we don't really know what's happening in those reinsurers.
We're not in their books and we don't really know what's happening.
And there's just this incredible distrust of the free market and insurance.
(22:27):
You know, the business of insurance. And the department, rather than looking
at itself as a fair and efficient regulator,
they look at themselves as a consumer protection agency whose primary role is
to protect the consumer from the industry.
But I almost think that protecting the consumer is protecting the industry because
(22:51):
the consumer at the end of the day, honestly, is the one that's hitting it the
hardest because they're They're the ones that they're not making any more money.
And yet they're, you know, you take somebody who's had the same house forever
and they've paid the same amount of money and they're on a fixed income.
And now their bills, you know, $5,000 that they don't have. And that's a whole nother problem.
(23:13):
In fact, to that point, Samantha, at the fair plan hearing, I mentioned that
I said, you know, look, when companies tell you they need rates,
they're not lying to you. They need rate.
We need these companies back in the market.
But but there is this, again, a tipping point where consumers,
because carriers have been denied rate increases so long, consumers are going
(23:36):
to have sticker shock. Oh, yeah.
Right. I mean, this is already starting to happen. The department is now imploring
companies to apply for the rate you want. We'll do our best to get it for you.
And, you know, consumers are going to really be angry with the premium increases they get.
And we don't want you know, it's a fine line.
In our messaging, we're basically asking the department to allow carriers to charge more.
(24:05):
But the unfortunate reality is, if there is no competition between carriers,
the consumer cannot win.
The consumer wins when companies compete.
So give companies the rate. The math does not lie. If a company says,
you know, here's our rate filing, you've got to believe that all this math is telling the story.
(24:27):
The rate is what the rate is. Are they going to get in there and kind of manipulate
it? Well, you can probably, you know, pump and temper these rates a bit.
But companies need the rates they need to be profitable and effective.
And also to stay in business. I mean, at a base level, one of the articles I
(24:47):
was reading was this guy, Dave Winokur, he's the chief of the East Bay Moraga Fire Department.
And his quote was great. It says here, there is no future in which we can price
our way out of this crisis with just premiums. And I really like that because
I think it is a little bit more than just, you know, a rate tick.
It's it's having more excitement to do business in California.
(25:07):
And it's also having, you know, the market needs to understand that,
you know, again, going back to what we were just talking about,
like what was is no longer.
So we need to create the new norm of what the homeowners or property expense
experience is moving forward.
Because what was before, like we all just need to like forget about it. Yeah, I think...
(25:30):
Part of this is going to be risk management, consumers, no more wood shake roofs, cement siding.
There's so many new products out there that we can use and techniques that we
know work to harden homes.
You know, whether it's clear cutting fields that are next to your home,
(25:53):
you know, making sure there's no vegetation within so many feet of your foundation
or inches of your foundation,
no more wood shake, no more wood on the home.
I mean, certain things, you know, that a lot of these firewise communities are starting to embrace.
But, you know, to your point, to that fire chief's point, it's not premium alone
(26:15):
is not going to get us out of here.
And we're going to break the back of the consumer. So the consumer's got to
have some skin in the game.
We all got to work together, I think. Yeah, that's right.
So I talk a lot, as you, we talk insurance all the time,
and I was speaking to some individuals in the surplus line space and they were
talking about rumblings that they were hearing about wildfire only type of policies
(26:39):
being like a quake or like a flood,
which are not, you know, wrapped into a normal homeowners.
Is that something that could actually become a reality?
Yeah, you know, I think companies that really figure this out,
necessity being the mother of invention, right?
This marketplace right now is just ripe for the E&S market, somebody to come
(27:02):
in, companies to come in and basically write a super skinny fire policy,
just a stripped down and it's like build a bear.
Okay, so, oh, you want animal liability?
Well, that's going to be an extra charge. You want this coverage?
There's going to be an extra charge. But I'm with you.
I think consumers are to the point where they will take thinner coverage in
(27:27):
exchange for, you know, a reduced or manageably affordable premium.
And shed coverage that they may not really need and view more as a luxury.
But I do think that we are going to see companies, I think, coming into the marketplace.
And to the extent that we can get lenders to be okay with these thinner policies,
(27:51):
I think that we're going to see them, you know, because the market is really
sort of demanding it right now.
Consumers are really in a tough spot. And we've got to find a solution.
There has to be something different. You know, you're starting to see,
I just wrote a policy with a million dollar wildfire deductible.
I read that and I was like, was that a typo? Did I read that?
(28:11):
No, that was, he's like, no, that's what it is. Or a percentage of the dwelling
amount, which, you know, you typically would only see on a quake policy or,
you know, wind or hurricane coverage in other states.
And so you are starting to see things. But then the other part of the problem
is these lenders, they want what they want and they're not realizing,
hey, we can't, we can't sell it to your your buyers.
(28:32):
Right. You know, drop down limits, sub limits.
You know, I think some combination of these things make sense,
at least allow companies to come into the market and offer these and see where things land.
But I think fully informed consumers, you know, when given alternatives and
(28:52):
when there's competition, they're going to make the right decisions.
And, you know, We don't want to price poor consumers out of the marketplace.
They're already under tremendous, tremendous pressure just going to the grocery
store and just inflation everywhere.
You can see when the CPI data comes out, the inflation and the cost of insurance is a big deal.
(29:16):
You know, it's a big deal. It's a huge expense, and it's an expense that people
don't have money to pay for at that level. I mean, to bump up $500, fine.
To bump up $10,000, come on. You know, people, there is no money.
There's no piggy bank for that.
And I think it's crazy that we would expect people to pay that.
But I also think it's crazy for people to think that it's going to cost $800
(29:39):
because it's just not. That's just not where we're at.
It's a tough thing. As tough as we are on the insurance commissioner,
I'm very sensitive to the jam that he is in. He's an elected official.
All of these commissioners, they're looking at their next office.
(29:59):
Is he looking at LA supervisor, a lieutenant governor?
Who wants to run for office when you've jacked everybody's rates up.
And so there are political considerations.
There's no good win for him.
Rates have to go up. But you can, again, take the emotion out of things because
(30:23):
these carriers, when they formulate
rates and do all the math and let the chips fall, this is the rate.
Everything possible is insurable. I can insure your voice.
I can insure your hands if you're a piano player, you know, whatever it is, there's a price.
(30:44):
Okay. And so where does the risk and the premium sort of intersect where we
can do it for X, but we need to charge Y. Right. So.
Everything is possible, but the regulatory system just does not allow carriers
to have that flexibility.
I mean, think about it on the auto side, particularly. It is so controlled by statute.
(31:09):
Prop 103 says you've got to use these 19 rating factors and they've got to be in this order.
You've got to use these three primary rating factors in this particular order.
And companies are a bit in a straitjacket. And it's not been helpful.
I think if they had more flexibility to charge premiums that reflected the risk
(31:32):
of loss with reasonable regulatory oversight, we'd be in a better situation.
I'm not saying let them go unbridled. You know, entities that make regulations
would understand if something's not working, right?
It's like the rest of us out here in the private sector, like you got to shift
it around and find something that works.
(31:53):
And, you know, something that was put in place, you know, 30 years ago,
might not be the best thing for today, because it's an ever changing market.
And more importantly, like the catastrophe, like the climate and what's happening,
I mean, these were things that were not on the playing field before.
And so the goalpost is shifting.
We as consumers, you know, are wanting X and carriers are wanting Y and agents are wanting Z.
(32:19):
And, you know, the commissioner and his team is needing A, B and C.
And I think that at some place the alphabet needs to get in sync and find a
way that we can all harmoniously, you know, not fix the problem overnight,
but at least move in a direction.
And I'm hoping that, you know, the fact that they are unveiling some of these
new things with, you know, allowing
catastrophe modeling and allowing a quicker rate approval process.
(32:42):
I'm hoping that, you know, in the next few months, I keep telling clients like
something I, you know, we keep hearing rumblings like it's going to happen.
And so we can just hope and pray that everybody can play nice in the sandbox
and get the result done that we need.
Yeah, I mean, I think the efficiency is probably the number one thing I really
hear from carriers that is really...
(33:03):
A headwind for them. It takes so long to get rates approved.
And the back and forth is long and painful.
And, you know, the department comes out with these regs, you know,
not long ago, month or two ago, to force carriers to make a complete rate filing.
(33:24):
Okay, look it, the place The place is burning down. There's no sense of urgency.
And the department is trying to kind of put the blame on the carriers for incomplete submissions.
And what they're really trying to do is give themselves more leverage on carriers
in the rate making process as if they don't have enough already.
(33:47):
But it's these sorts of things that the department does that really gets carriers angry.
You know, the consumers and the market may, you know, demand and it may be something
that's going to happen organically just because everybody's leaving and the
fair playing can't take it.
And guess what? Fire season's right around the corner, California.
(34:10):
So, you know, hopefully before we start to hit the end of summer,
when things start to get a little dicey, you know, there can be some resolve,
which leads me into my closing statement with you.
Going back to just the wonderful, you know, opportunity and,
you know, the conference.
And I'm like losing my train of thought because I'm so, I like,
(34:30):
I get so excited because I've been going for years, you know,
for a place for people to connect and get together and learn about these types of things.
And you guys bring in a lot of industry professionals and, you know,
lobbyists and high level people that are, you know, moving and shaking.
So that's the conference that's coming up. It's the American Agents Conference
in September in Palm Springs that I will post some links in our show notes.
(34:51):
So if you're interested in, you know, meeting up with peers,
learning more about, you know, these types of conversations,
being around the movers and the shakers, this is a great event to come to.
I know I'll be there. Mike will be there.
Yeah, you know, we had the president of the Fair Plan, Victoria Roach.
We had the CEO, John Forney, Giovera.
(35:12):
And we had Rex Frazier, who's the president of the Personal Insurance Federation.
He represents his group. He sort of does what I do, but he represents State
Farm, Farmers, Allstate, Mercury, Safeco, Progressive, and many other companies,
primarily personal lines oriented, over 80% of the homeowners, carriers in the state.
And he's in the middle of all this with the department.
(35:34):
And we're going to have some similar keynote event at our conference this year.
It's at that beautiful JW Marriott Desert Springs Resort in Palm Desert.
So lots of CE, over 140 booths on our 30,000-foot trade show floor.
And I think the biggest opportunity is really networking.
(35:56):
It's an undervalued and underappreciated part of it. But cocktail mixers and,
you know, things where you're able to talk to some of your peers and your folks
have for many years been so good helping us with our CE.
And, you know, you have been teaching CE. You started teaching CE at our stuff
20 years ago. I mean, it's been a long time. It's crazy.
(36:19):
You guys have been very, you guys have been so good to us over the years for your listeners.
I'll tell you, you guys have been just wonderful. Your mom and dad know exactly
how to get courses approved.
They used to sit on the credentialing committee for CE at the department.
I'm doing that now. I'm there now. I know you are. So congrats. We're lucky to have you.
(36:41):
Yes. No, it's a great honor. And I think education and continuing growth and
learning about new products and services.
I mean, all the doom and gloom we've just been talking about.
There's also a lot of really great stuff that's going on and new things.
And, you know, we hear technology and AI and it's scary and it's great,
but there's also a lot of things in our, you know, in the toolbox that you guys
are providing that we can jump in and, you know, increase the bottom line.
(37:03):
And insurance is still a pretty rad business to be in.
It's just a little, it's a little, you know, controversial and turbulent right
now, but it's still fantastic.
I will tell you that I'm hearing from a lot of producers how their phone will not stop ringing.
So as tough as it is, okay, I would seize the moment.
Okay help get consumers the coverage they need it may not be perfect let's not
(37:28):
let the perfect get in the way of the good okay I'm going to take care of them
even if it's a fair plan and DIC policy whatever they need I'm going to try
to fix it this is not a permanent solution but at least then you pull them into the agency,
you were there to help them when they needed it and the objective will be to
transition them to a better market as soon as companies get rate adequate and
(37:49):
that is starting to happen it's just.
It's not happening fast enough. It's taking a little longer.
And I also think just being the voice of, you know, calm and also knowledge,
you know, and for those agents that are listening, that maybe are only hearing
stuff off the news, and they're not really up to know with what's going on with
the different legislation and different things.
I mean, that's another thing that the agents lines is great for because you
(38:10):
guys are posting, you're in the know.
I mean, if you follow you guys on LinkedIn, I mean, anytime anything's happening,
man, that's the first place that I get my information.
So Mike, I can't say thank you enough. I mean, I was so So jazzed to get to
talk to you just because, you know, I love you.
But also I find that, you know, what you do to serve the independent agent in
a lot of big, broad ways is really cool. So thank you so much.
(38:32):
I appreciate that. And you and your folks have been a big part of us being able to be successful.
So give them our best and keep up the great work, Sam. And you got the best.
I will. I will. And everybody else, get out there this week and be up to speed.
All right. We've got a good one here on Up to Speed today. I am joined with
a dear friend of mine, Mr.
Mike Diarelli, who is the Executive Director of the American Agents Alliance.
This is the guy that knows what's going on out there. And we have so much to
talk about today. So Mike, thanks for joining us.
Thank you, Samantha. Looking forward to it. I appreciate the opportunity.
(00:22):
You're just, you're an icon in the industry. So we are just thrilled.
So first and foremost, for those of our listeners that don't know what the Agents
Alliance is, can you just give us a real quick high level on what it is?
Yes. The American Agents Alliance is a association, a national association of
independent property and casualty insurance agents.
(00:43):
So we represent independent agents nationally, and we've gotten our roots established
here in California, and we've been here since 1962.
We went more national probably 15 years ago, I would say.
Just because we've got a fantastic errors and omissions program and we had agents
(01:05):
coming in from Texas and Florida, New York, and we started serving them with product and that was it.
So we've got a long, rich history and we serve agents and brokers.
In the best way possible, possible providing education, providing,
you know, mentorship, providing in just information.
I think for so many of us, there's, there's not a lot of, I mean,
(01:26):
there's a lot of places to go, but there's not a lot of places to go where you
can get a lot of it in a big capacity.
So what you're doing, and for those that aren't members, you definitely should
look into the program. The ENO part alone is worth it.
And, you know, in addition to that, there's a lot of knowledge that you guys
have on your side, because you are keeping up with all the things that are going
(01:47):
on in this wild insurance industry that we are really experiencing here in California,
but really nationwide and globally, if we really want to unpeel all the onion.
So I would like to just buckle up.
Just put the pedal down and let's go. What is happening out there? Like, what is going on?
(02:10):
You know, I had my own agency 30 years ago.
And so I've been in this space for a long time. And I can tell you,
I have never seen sort of a seized up market as we have here in California,
particularly, but some of the things we're seeing nationally,
but specific to California, California
(02:30):
the home and auto market
are just a hot mess and most
of it really sort of came to a head when our
insurance commissioner Ricardo Lara decided that he
was going to put a moratorium on any
new rate increases particularly for auto insurance I think consumer watchdog
(02:53):
some of the consumer groups had convinced the commissioner that carriers needed
to refund about $3 billion to consumers after COVID.
The consumer groups felt that carriers had unduly enriched themselves when people
were at home, they weren't driving.
If they were driving, it was a couple thousand miles a year,
(03:14):
and everybody's working from home in their slippers and jammies sort of thing.
And carriers, all of whom handled their policyholders the way they saw fit,
which was, you know, some companies did nothing, some refunded premiums,
some gave credits, but everybody dealt with their policyholders the best way
they thought possible under the circumstances.
(03:37):
Nonetheless, it wasn't good enough for the consumer groups. The department listened
to the consumer groups and said, okay, well, if you guys aren't going to refund
more money to consumers, then we're going to get that money one way or another,
and we're just not going going to approve rate increases.
And so for 30 months, they approved no rate increases for auto insurers.
And meanwhile, inflation was running rampant.
(04:00):
We all know everything at the grocery store, hardware store,
you name it, it got more expensive and auto parts and supply chain issues were not exempt.
It went from bad to worse.
And companies have been operating with inadequate rates.
And for every dollar of premium they were collecting, they were spending more
(04:24):
than that on claims and expenses and the rest of it.
So when you're in a whole stop digging, a lot of companies just told me,
we can deploy capital more efficiently somewhere else. Economics 101,
capital will fly to the place where it's most efficiently deployed.
And so So companies really started limiting their exposure here.
(04:46):
And one by one, it's like a bad Agatha Christie novel, you know,
and then there were how many sitting at the table? Not many.
We have our own agency at the association to serve members, more of a wholesale operation.
We don't deal with the retail public, but all of our markets,
Ravelers, Safeco, even Progressive, Mercury.
(05:09):
Mercury's been the best. Mercury never shut down. I will tell you,
the department has taken shots at them over the years, but they are dedicated to the producers.
And Progressive as well, to a lesser extent, they've been very good.
But I'll tell you, the big national preferred markets, Safeco Travelers, not so much.
They were, particularly Travelers, was the first to pull that rope ladder back
(05:33):
into the helicopter and fly away.
So that sort of precipitated, you know, what we're now seeing with home.
Home is a little more complicated, I think, by national catastrophe issues that
are affecting other states as well.
But in California, carriers have long been dealing with Proposition 103 since 1988,
(05:54):
and it's created a very hostile adversarial relationship between carriers and
the department as companies need to file for rate approval.
And the department has weaponized this rate-making process.
Proposition 103 has created an intervention right for Consumer Watchdog.
(06:17):
And when companies file for rates, particularly when they're over 7%,
there's an intervention right.
And Consumer Watchdog typically intervenes, runs up a big bill,
flows down the process, acting on behalf of consumers.
And it's increased time and expense for carriers to get rate approvals.
(06:39):
You'll apply for a 25% rate.
The department will sit on the filing for a little bit. They'll get back to
you and say, I think we can get you 15.
Then Harvey Rosenfield at Consumer Watchdog intervenes and crams the rate request
down maybe to eight or nine or 10.
And then slides you, the carrier, a bill for $500,000 to $5 million that you have to pay.
(07:01):
Thank you very much. So that kind of came to a head with this rate moratorium
that the commissioner is solely responsible for, by the way.
Just kind of played a game of chicken with the carriers. And now the carriers
really have all the power.
I mean, they have sort of taken their toys, left the playground. ground
(07:21):
and now it's sort of incumbent on the
department to induce companies to get
back in the game the auto pieces eat the department just needs to get more efficient
the department needs to fast track we've been calling for a fast track quicker
rate approval process for auto the home there are regulations now that are moving
(07:43):
finally a deal was killed in the legislature last year.
To fix it. But there's no sense of urgency at the department. It's really shocking.
That's... Yeah. It's like a bottleneck almost. It feels like...
Just in the last six, eight weeks or so, you have March 24, the state farm debacle
with them pulling out of the California property market, essentially with 72,000
(08:04):
home and apartment building policies, they're non-renewing, which are...
I just got off the phone with a client who'd been with them for 50 years.
And here's this little old guy from Encino and he's up in the hills and he's
just like, what am I going to do?
I mean, I'm too old to even rebuild my house, but I can't afford to pay $30,000
because that's what it's going to cost him now.
(08:26):
Then we have, you know, March 24, the fair plan talking about their 375,000
policyholders, their total risk exposure being $311 billion.
And 2018, that was $50 billion. So that's a whole nother crazy thing.
Because even when I sat in the seat at your session back in September,
(08:49):
with the Fair Plan lead, they aren't in a situation where they've got capacity
to take care of this if there's a problem.
They're adding $10 billion a month to their over $300 billion exposure,
and they've We've got $2 billion in the bank.
And so carriers rightfully are scared to death.
(09:11):
And when they're making a decision whether to stay in this homeowner's market or stop and get out,
this is a big part of the decision because every carrier is responsible for
their share of fair plan losses.
Now, the fair plan, for some of your listeners, it's 100% industry money.
(09:33):
There's no government money, there's nothing in it except industry support based
on your market share of homeowner's business in the state.
If there's a cigarette butt flicked out the window in Big Bear,
which the plan is, the fair plan is so highly concentrated in some of these
hot parts of the state that I am telling you, it is really scary.
(09:57):
We are one fire away from DEFCON 3 total meltdown.
And regulators seem to think that, and lawmakers to some extent,
that these carriers just, they turn the money handle and the money just comes
out of the machine. And carriers, even State Farm has demonstrated that even
their capacity is limited.
And what happens is carriers are making decisions to exit the California homeowners
(10:23):
market based on their exposure to the fair plan and a possible assessment.
And it's statistically going to happen. Yeah, it's it's, you know,
and poor Victoria Roach, the president, CEO over at the Fair Plan.
She's like a like a snake that swallowed a deer. You know, she's trying to do the best she can.
(10:44):
And but she's she's got a thousand policies a month coming in.
She can't staff up fast enough.
They can't answer phone calls fast enough. They can't return emails.
They've got this tech rollout that has been just a real disaster.
But the old system wouldn't have handled this.
So they had planned to do this at the end of last year because it's typically
a slower part of the season of the year.
(11:06):
And it just happened to be, you know, the worst time to do it.
And it's just a confluence of bad things.
And that fair plan could really.
Be a cataclysmic event if we have a major buyer.
Yeah, I saw in the news this morning that they were planning for a rate increase,
(11:28):
which I mean, they are priced, they're not an ideal price component,
but they're also typically have always been the carrier of last resort.
Now the only resort in a lot of ways, or spend $60,000 a year, Mr.
Living in Encino, you know, with your 1800 hundred square foot house.
I mean, it's just it's it's crazy.
And I also wonder, too, if people can't get insurance, what's that going to
(11:49):
do to the mortgage banking industry?
I mean, it just is a snowball effect. It's a chain reaction of bad things.
In the hearing, the Fair Plan Oversight hearing in the Assembly Insurance Committee
a few weeks ago, I testified in there and the statement was made by Victoria Roach.
Coach, she said, we needed a 70% rate increase.
(12:14):
We filed for 48, and we ended up getting 15.
And it took us 25 months to get it. And when I went up, I said,
you all want to know what the problem is?
I said, this is exhibit A. Okay, this is the market of last resort,
which is now the market of first resort.
Okay, we're all going to end up being insured by the fair plan pretty soon If
we don't play our cards right here, that's the problem.
(12:35):
OK, this critical program can't even get rate adequate.
Right. Even this program has inadequate rate right now.
And so it's not realistic to ask companies or the fair plan, quite frankly.
To continue to digest all of this exposure when they're not properly funded.
(12:59):
And so insurers are really nervous about this.
And by statute, that fare plan has to be depopulated of policies.
And so I told lawmakers, I said, you can't depopulate the fare plan until you
have another lily pad to put these policies on.
And that lily pad is the private market. And so when tail carriers get adequate rate,
(13:24):
you know, they don't want to come in and pull out 25,000 or 50,000 policies
and start transitioning these policies back to the proper marketplace.
Which is the private market. Sure.
And in the private market, going back to that rate, you know,
consumers only know what they see on the news, what they read in the paper.
And, you know, a lot of the information a lot of times isn't necessarily it's,
(13:46):
you know, the world's on fire.
Recently, they said that the state farm had been downgraded to a B paper.
Well, in reality, it was a very small sector of state farm.
But, you know, everyone there thinks, oh, my God, they're not financially sound anymore. more.
And, you know, paying $800 a year for $750,000 in coverage, I mean,
people were way underpaying and have been for years on not only property policies,
(14:11):
but business insurance, commercial.
I mean, they've been not paying what they should have been paying for a long
time because of these, you know, consumer watchdog efforts that were trying
to help people, but in reality was creating, I think, a bigger problem.
Well, you know, it's interesting.
The consumer doesn't really know that companies can't just charge what they want.
(14:31):
They don't really understand how highly regulated our business is.
And companies have to get their rates approved.
And they have to prove up their rate requests with a five foot high stack of
regression analysis and actuarial data that is mind numbing. It's all math. And.
You know, the efficiency of the department is just really lacking,
(14:54):
and it just really all came to a head in this perfect storm.
It was really, thankfully, the State Farm situation that has gotten the attention
of the department, news outlets.
My phone started blowing up with phone calls from media who started taking things more seriously.
And the department had previously kind of poo-pooed it. And,
(15:18):
well, there's over 100 insurers on the home side.
You know, even if State Farm leaves the marketplace, you know,
farmers and these other companies are going to step up and absorb it.
And after one month, even farmers said, I'm out.
You know, we aren't going to do this. We are going to cap our monthly number
of policies to 7000, which is what it was before State Farm left the market. it.
(15:44):
And they're hitting that number earlier and earlier every month.
And then they just don't take any more home business, but it's,
it's a bad situation, you know, and it's, it's really the department's problem.
They created a lot of this and either way, you know, the commissioner is supposed
to lead, you know, California sneezes, the rest of the country catches a cold,
(16:06):
you know, we're supposed to be leading, not following.
And other States are able to use risk modeling to establish wildfire rates.
They're able to expense their reinsurance costs, which have not been allowed
in California for home purposes, although it is allowed in California for earthquake purposes.
(16:30):
You can use risk modeling and you can expense your reinsurance costs.
But we're the last state and nation to allow companies to do this.
We want to induce companies to take risks. We want them to go into Big Bear.
We want them to go into Lake Tahoe, into these places.
And these companies employ super smart mathematicians and statisticians and
(16:53):
actuaries to run the numbers and to make determinations about what's that tipping
point between risk and premium where we can go into an area and make money.
And the law does not allow them to use risk modeling.
So you have to look at the last 20 years of premiums and losses in an area.
So we're looking in the rearview mirror, you know, to determine what premiums
(17:16):
are going to be, you know, through the windshield.
And finally, the department has found religion and they're moving a set of regulations
in this sustainable insurance program that Ricardo Lara is finally getting behind.
But no sense of urgency, Samantha. Yeah, no sense of urgency.
(17:36):
We were talking about this before the end of the legislative session in September,
and we were really pressuring people.
The commissioner to move with urgency, some sense of urgency,
for goodness sakes, Rome is burning.
And he's walking this thing as slowly
as possible. And it's really been frustrating and still slow walk it.
(18:00):
Well, and I think it's frustrating, you know, when you do see the,
you know, the things come out that these things are in the pipeline and,
and it's like, you know, we're all sitting here going, okay,
you know, the consumers are struggling because they don't understand.
And then you have agents that are, you know, This is their livelihood. This is their living.
And when I was with your group, you had a room full of people that were angry and frustrated.
(18:24):
And yes, they're trying new ways and pivoting in this direction and doing these things.
But these are seasoned people that have been in the industry for 30, 40, 50 years.
And they're having to just reinvent and recreate for a reason that I think we
could have not avoided, but at least got in front of and tried to make it a
little bit different. had things, you know, maybe had a little bit more speed to them.
(18:48):
It's, you know, we, the ones that sit kneecap to kneecap with consumers every day.
I mean, agents are perfectly positioned. And when I meet with lawmakers or testify,
I, I don't make it about the agent because lawmakers think that agents are all
rich and, you know, they don't And so I keep focus on the consumer.
(19:12):
And I have never heard from so many agents so upset, I mean,
in tears, unable to help the customer.
And I've got members, I won't use names, but people we both know who have very
established agencies, and third generation agency owners. homeowners, and they are so angry.
(19:34):
And they say, Mike, it's not about the money because my PIF count may be dropping,
but I'm getting more premium.
It's about not being able to help my customer.
They're in my office, they're in tears, and I've got nothing for them.
One of my members has, he said, Mike, I've got 10, at least 10 homeowners with
(19:55):
homes over a million dollars, and they have no insurance. They're going bare.
And it's really, it's crazy. It's, you know, it's.
And I mean, we're trying to make the market be difficult too,
not only on the personal line side. I mean, cause I primarily commercial property is my gig.
And it's like, number one markets, the commercial carries and the surplus lines.
(20:15):
I mean, they're writing business.
They're charging three, four, five X cause they can, but also just the turnaround time.
And just the, I mean the whole industry, I don't know if it shifted a lot during
COVID too, just the methodology of the, how we're doing business from the carrier
side to the independent or the agent side, it's all weird.
It's very unsettling, if you will.
(20:39):
Yeah, I think the cheese has definitely moved. It's funny, we had the author
of that book come to our convention years ago to do a keynote, probably 15 years ago.
The cheese is moving. Basically, business is changing. Get ahead of it. Stay ahead of it.
You know, go to where the puck is going to be sort of thing.
(21:00):
And, you know, you feel the influence of insure tech companies and COVID has
changed things forever, you know, for better or for worse.
We're never going back to the way that it was.
And i think there are some good things that probably came out
some not so good things but it's just definitely different and
(21:23):
you can feel it it's palpable this is still a great business and there's tons
of great opportunity but it's dispiriting when the regulator is really part
of the problem and i'm not anti-regulation because i think if left to our own devices Businesses,
companies, they would overreach.
(21:43):
Regulation should be, however, that grease that keeps the wheels of commerce grinding.
Make sure companies remain solvent. We want competition, but there is this unbelievable
distrust of carriers by the department.
The department just doesn't trust insurers at all.
(22:06):
They wouldn't let them use expense their reinsurance costs because,
well, we don't really know what's happening in those reinsurers.
We're not in their books and we don't really know what's happening.
And there's just this incredible distrust of the free market and insurance.
(22:27):
You know, the business of insurance. And the department, rather than looking
at itself as a fair and efficient regulator,
they look at themselves as a consumer protection agency whose primary role is
to protect the consumer from the industry.
But I almost think that protecting the consumer is protecting the industry because
(22:51):
the consumer at the end of the day, honestly, is the one that's hitting it the
hardest because they're They're the ones that they're not making any more money.
And yet they're, you know, you take somebody who's had the same house forever
and they've paid the same amount of money and they're on a fixed income.
And now their bills, you know, $5,000 that they don't have. And that's a whole nother problem.
(23:13):
In fact, to that point, Samantha, at the fair plan hearing, I mentioned that
I said, you know, look, when companies tell you they need rates,
they're not lying to you. They need rate.
We need these companies back in the market.
But but there is this, again, a tipping point where consumers,
because carriers have been denied rate increases so long, consumers are going
(23:36):
to have sticker shock. Oh, yeah.
Right. I mean, this is already starting to happen. The department is now imploring
companies to apply for the rate you want. We'll do our best to get it for you.
And, you know, consumers are going to really be angry with the premium increases they get.
And we don't want you know, it's a fine line.
In our messaging, we're basically asking the department to allow carriers to charge more.
(24:05):
But the unfortunate reality is, if there is no competition between carriers,
the consumer cannot win.
The consumer wins when companies compete.
So give companies the rate. The math does not lie. If a company says,
you know, here's our rate filing, you've got to believe that all this math is telling the story.
(24:27):
The rate is what the rate is. Are they going to get in there and kind of manipulate
it? Well, you can probably, you know, pump and temper these rates a bit.
But companies need the rates they need to be profitable and effective.
And also to stay in business. I mean, at a base level, one of the articles I
(24:47):
was reading was this guy, Dave Winokur, he's the chief of the East Bay Moraga Fire Department.
And his quote was great. It says here, there is no future in which we can price
our way out of this crisis with just premiums. And I really like that because
I think it is a little bit more than just, you know, a rate tick.
It's it's having more excitement to do business in California.
(25:07):
And it's also having, you know, the market needs to understand that,
you know, again, going back to what we were just talking about,
like what was is no longer.
So we need to create the new norm of what the homeowners or property expense
experience is moving forward.
Because what was before, like we all just need to like forget about it. Yeah, I think...
(25:30):
Part of this is going to be risk management, consumers, no more wood shake roofs, cement siding.
There's so many new products out there that we can use and techniques that we
know work to harden homes.
You know, whether it's clear cutting fields that are next to your home,
(25:53):
you know, making sure there's no vegetation within so many feet of your foundation
or inches of your foundation,
no more wood shake, no more wood on the home.
I mean, certain things, you know, that a lot of these firewise communities are starting to embrace.
But, you know, to your point, to that fire chief's point, it's not premium alone
(26:15):
is not going to get us out of here.
And we're going to break the back of the consumer. So the consumer's got to
have some skin in the game.
We all got to work together, I think. Yeah, that's right.
So I talk a lot, as you, we talk insurance all the time,
and I was speaking to some individuals in the surplus line space and they were
talking about rumblings that they were hearing about wildfire only type of policies
(26:39):
being like a quake or like a flood,
which are not, you know, wrapped into a normal homeowners.
Is that something that could actually become a reality?
Yeah, you know, I think companies that really figure this out,
necessity being the mother of invention, right?
This marketplace right now is just ripe for the E&S market, somebody to come
(27:02):
in, companies to come in and basically write a super skinny fire policy,
just a stripped down and it's like build a bear.
Okay, so, oh, you want animal liability?
Well, that's going to be an extra charge. You want this coverage?
There's going to be an extra charge. But I'm with you.
I think consumers are to the point where they will take thinner coverage in
(27:27):
exchange for, you know, a reduced or manageably affordable premium.
And shed coverage that they may not really need and view more as a luxury.
But I do think that we are going to see companies, I think, coming into the marketplace.
And to the extent that we can get lenders to be okay with these thinner policies,
(27:51):
I think that we're going to see them, you know, because the market is really
sort of demanding it right now.
Consumers are really in a tough spot. And we've got to find a solution.
There has to be something different. You know, you're starting to see,
I just wrote a policy with a million dollar wildfire deductible.
I read that and I was like, was that a typo? Did I read that?
(28:11):
No, that was, he's like, no, that's what it is. Or a percentage of the dwelling
amount, which, you know, you typically would only see on a quake policy or,
you know, wind or hurricane coverage in other states.
And so you are starting to see things. But then the other part of the problem
is these lenders, they want what they want and they're not realizing,
hey, we can't, we can't sell it to your your buyers.
(28:32):
Right. You know, drop down limits, sub limits.
You know, I think some combination of these things make sense,
at least allow companies to come into the market and offer these and see where things land.
But I think fully informed consumers, you know, when given alternatives and
(28:52):
when there's competition, they're going to make the right decisions.
And, you know, We don't want to price poor consumers out of the marketplace.
They're already under tremendous, tremendous pressure just going to the grocery
store and just inflation everywhere.
You can see when the CPI data comes out, the inflation and the cost of insurance is a big deal.
(29:16):
You know, it's a big deal. It's a huge expense, and it's an expense that people
don't have money to pay for at that level. I mean, to bump up $500, fine.
To bump up $10,000, come on. You know, people, there is no money.
There's no piggy bank for that.
And I think it's crazy that we would expect people to pay that.
But I also think it's crazy for people to think that it's going to cost $800
(29:39):
because it's just not. That's just not where we're at.
It's a tough thing. As tough as we are on the insurance commissioner,
I'm very sensitive to the jam that he is in. He's an elected official.
All of these commissioners, they're looking at their next office.
(29:59):
Is he looking at LA supervisor, a lieutenant governor?
Who wants to run for office when you've jacked everybody's rates up.
And so there are political considerations.
There's no good win for him.
Rates have to go up. But you can, again, take the emotion out of things because
(30:23):
these carriers, when they formulate
rates and do all the math and let the chips fall, this is the rate.
Everything possible is insurable. I can insure your voice.
I can insure your hands if you're a piano player, you know, whatever it is, there's a price.
(30:44):
Okay. And so where does the risk and the premium sort of intersect where we
can do it for X, but we need to charge Y. Right. So.
Everything is possible, but the regulatory system just does not allow carriers
to have that flexibility.
I mean, think about it on the auto side, particularly. It is so controlled by statute.
(31:09):
Prop 103 says you've got to use these 19 rating factors and they've got to be in this order.
You've got to use these three primary rating factors in this particular order.
And companies are a bit in a straitjacket. And it's not been helpful.
I think if they had more flexibility to charge premiums that reflected the risk
(31:32):
of loss with reasonable regulatory oversight, we'd be in a better situation.
I'm not saying let them go unbridled. You know, entities that make regulations
would understand if something's not working, right?
It's like the rest of us out here in the private sector, like you got to shift
it around and find something that works.
(31:53):
And, you know, something that was put in place, you know, 30 years ago,
might not be the best thing for today, because it's an ever changing market.
And more importantly, like the catastrophe, like the climate and what's happening,
I mean, these were things that were not on the playing field before.
And so the goalpost is shifting.
We as consumers, you know, are wanting X and carriers are wanting Y and agents are wanting Z.
(32:19):
And, you know, the commissioner and his team is needing A, B and C.
And I think that at some place the alphabet needs to get in sync and find a
way that we can all harmoniously, you know, not fix the problem overnight,
but at least move in a direction.
And I'm hoping that, you know, the fact that they are unveiling some of these
new things with, you know, allowing
catastrophe modeling and allowing a quicker rate approval process.
(32:42):
I'm hoping that, you know, in the next few months, I keep telling clients like
something I, you know, we keep hearing rumblings like it's going to happen.
And so we can just hope and pray that everybody can play nice in the sandbox
and get the result done that we need.
Yeah, I mean, I think the efficiency is probably the number one thing I really
hear from carriers that is really...
(33:03):
A headwind for them. It takes so long to get rates approved.
And the back and forth is long and painful.
And, you know, the department comes out with these regs, you know,
not long ago, month or two ago, to force carriers to make a complete rate filing.
(33:24):
Okay, look it, the place The place is burning down. There's no sense of urgency.
And the department is trying to kind of put the blame on the carriers for incomplete submissions.
And what they're really trying to do is give themselves more leverage on carriers
in the rate making process as if they don't have enough already.
(33:47):
But it's these sorts of things that the department does that really gets carriers angry.
You know, the consumers and the market may, you know, demand and it may be something
that's going to happen organically just because everybody's leaving and the
fair playing can't take it.
And guess what? Fire season's right around the corner, California.
(34:10):
So, you know, hopefully before we start to hit the end of summer,
when things start to get a little dicey, you know, there can be some resolve,
which leads me into my closing statement with you.
Going back to just the wonderful, you know, opportunity and,
you know, the conference.
And I'm like losing my train of thought because I'm so, I like,
(34:30):
I get so excited because I've been going for years, you know,
for a place for people to connect and get together and learn about these types of things.
And you guys bring in a lot of industry professionals and, you know,
lobbyists and high level people that are, you know, moving and shaking.
So that's the conference that's coming up. It's the American Agents Conference
in September in Palm Springs that I will post some links in our show notes.
(34:51):
So if you're interested in, you know, meeting up with peers,
learning more about, you know, these types of conversations,
being around the movers and the shakers, this is a great event to come to.
I know I'll be there. Mike will be there.
Yeah, you know, we had the president of the Fair Plan, Victoria Roach.
We had the CEO, John Forney, Giovera.
(35:12):
And we had Rex Frazier, who's the president of the Personal Insurance Federation.
He represents his group. He sort of does what I do, but he represents State
Farm, Farmers, Allstate, Mercury, Safeco, Progressive, and many other companies,
primarily personal lines oriented, over 80% of the homeowners, carriers in the state.
And he's in the middle of all this with the department.
(35:34):
And we're going to have some similar keynote event at our conference this year.
It's at that beautiful JW Marriott Desert Springs Resort in Palm Desert.
So lots of CE, over 140 booths on our 30,000-foot trade show floor.
And I think the biggest opportunity is really networking.
(35:56):
It's an undervalued and underappreciated part of it. But cocktail mixers and,
you know, things where you're able to talk to some of your peers and your folks
have for many years been so good helping us with our CE.
And, you know, you have been teaching CE. You started teaching CE at our stuff
20 years ago. I mean, it's been a long time. It's crazy.
(36:19):
You guys have been very, you guys have been so good to us over the years for your listeners.
I'll tell you, you guys have been just wonderful. Your mom and dad know exactly
how to get courses approved.
They used to sit on the credentialing committee for CE at the department.
I'm doing that now. I'm there now. I know you are. So congrats. We're lucky to have you.
(36:41):
Yes. No, it's a great honor. And I think education and continuing growth and
learning about new products and services.
I mean, all the doom and gloom we've just been talking about.
There's also a lot of really great stuff that's going on and new things.
And, you know, we hear technology and AI and it's scary and it's great,
but there's also a lot of things in our, you know, in the toolbox that you guys
are providing that we can jump in and, you know, increase the bottom line.
(37:03):
And insurance is still a pretty rad business to be in.
It's just a little, it's a little, you know, controversial and turbulent right
now, but it's still fantastic.
I will tell you that I'm hearing from a lot of producers how their phone will not stop ringing.
So as tough as it is, okay, I would seize the moment.
Okay help get consumers the coverage they need it may not be perfect let's not
(37:28):
let the perfect get in the way of the good okay I'm going to take care of them
even if it's a fair plan and DIC policy whatever they need I'm going to try
to fix it this is not a permanent solution but at least then you pull them into the agency,
you were there to help them when they needed it and the objective will be to
transition them to a better market as soon as companies get rate adequate and
(37:49):
that is starting to happen it's just.
It's not happening fast enough. It's taking a little longer.
And I also think just being the voice of, you know, calm and also knowledge,
you know, and for those agents that are listening, that maybe are only hearing
stuff off the news, and they're not really up to know with what's going on with
the different legislation and different things.
I mean, that's another thing that the agents lines is great for because you
(38:10):
guys are posting, you're in the know.
I mean, if you follow you guys on LinkedIn, I mean, anytime anything's happening,
man, that's the first place that I get my information.
So Mike, I can't say thank you enough. I mean, I was so So jazzed to get to
talk to you just because, you know, I love you.
But also I find that, you know, what you do to serve the independent agent in
a lot of big, broad ways is really cool. So thank you so much.
(38:32):
I appreciate that. And you and your folks have been a big part of us being able to be successful.
So give them our best and keep up the great work, Sam. And you got the best.
I will. I will. And everybody else, get out there this week and be up to speed.
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