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Calfornia insurance commissioner speaks out about state's new deal with insurers

Is California's new deal with insurers a good deal for consumers? Depends on who you talk to
Is California's new deal with insurers a good deal for consumers? Depends on who you talk to 03:07

SACRAMENTO - Is it a solution to the California insurance crisis, or a bad deal for California consumers? That depends on who you talk to. 

CBS13's Julie Watts is getting answers on the pros and the cons of California's new deal with insurers.

We talked both with the insurance commissioner and consumer advocates today. The pros, according to the insurance commissioner, are that his new deal -- will keep insurers in California and encourage them to start writing policies again in wildfire zones. But critics warn that insurers will now get to increase rates based on future threats, which, they say, could be costly for all of us.

Springs Fire In Southern California Gains Strength, Continues To Threaten Homes
CAMARILLO, CA - MAY 3: A man on a rooftop looks at approaching flames as the Springs fire continues to grow on May 3, 2013 near Camarillo, California. The wildfire has spread to more than 18,000 acres on day two and is 20 percent contained. David McNew / Getty Images

Fire after catastrophic fire has led to an insurance crisis in California. Now, people living in high-risk fire zones simply can't get insurance anymore.

"What's happening now is insurance companies aren't calling you back and you're being sent to this fair plan, which is much more costly and you get less coverage," said California Insurance Commissioner Ricardo Lara.

Lara says seven of the top 12 insurers have limited or stopped writing new insurance policies in California because of the increasing cost of wildfires and floods. But he says his plan will fix that.

"Insurance companies are going to be taking those policies out of the fair plan and putting them into a traditional insurance policy," said Lara. "They've agreed to, once again, write not only policies but in our wildfire-distressed areas that affect so many of our communities."

Court says it's a bad deal.

"He is basically giving them a blank check, and in exchange, they're going to insure 85% of the homes in the high-risk areas," said Jamie Court with Consumer Watchdog. "That's not only leaving 15% of the people out but of those 85% of the people, are they going to be able to afford this new premium?" said court.

Under the commissioner's new plan, insurers agreed to cover homeowners in high-risk areas at 85% of their statewide coverage and take over policies from the state's high-cost fair plan for people who couldn't get coverage anywhere else. In exchange, the insurers can use forward-looking models to base rate increases on future risk.

Julie: Have the big insurers guaranteed they will come back to California and write new policies? Is there definite buy-in?

Lara: Absolutely, this is why this agreement has been so historic.

Court: This is a handshake agreement and the insurance companies are not bound by it.

Court argues the deal isn't binding and will raise rates overall. 

Julie: so, if this isn't the solution, then what, in your view, is?

Court: The right way about this is to prevent the builders from building in unsafe places and to require insurance companies to offer insurance policies to everyone who hardens their homes. Then the next step is to get the state to invest in helping people harden in their homes who can't afford it because we know hardened homes are much less likely to burn.

The commissioner acknowledged that rates will continue to rise regardless due to climate change and increasing risk. But, he argues that under his plan, homeowners will be charged based on risk and will be rewarded for home hardening and risk mitigation.

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