As Drafted, Insurance Commissioner’s Proposed Rules for Insurance Catastrophe Models Preserve Secrecy of Black Box Models

LOS ANGELES, March 14, 2024 /PRNewswire/ — Consumer Watchdog issued the following statement about the proposed catastrophe modeling rules released by Insurance Commissioner Ricardo Lara today.

“Black box catastrophe models are notoriously contradictory and unreliable, which is why public review and transparency are key before insurance companies are allowed to use them to raise rates. Commissioner Lara’s proposed rule appears drafted to limit the information available to the public about the impact of models on rates in violation of Proposition 103. 

“The rule fails to spell out whether or how the Department of Insurance would assess a model’s bias, accuracy, or the validity of the science, instead creating a pre-review process that appears primarily focused on determining what information companies must disclose and what they may conceal from public view. 

“The rule proposes use of non-disclosure agreements to meet the confidentiality demands of private black box modelers. Yet, if an NDA prevents public interest organizations from sharing their analysis of a model with the public, public participation in a review is meaningless.

“The rule also proposes expanding the use of catastrophe models far beyond wildfire loss, explicitly expanding them to flood and also allowing the Commissioner, at his discretion, to approve their use in any line of insurance. That could mean auto, non-wildfire residential or commercial, cyber insurance and more. It would also allow insurers to use models to predict all losses, not just catastrophe losses, a dramatic departure from current practice and one that would guarantee an explosion of rates.

“California needs a public catastrophe model to ensure climate data is transparent and to prevent insurance price-gouging and bias.” 

Read Consumer Watchdog’s testimony before the July and September 2023 catastrophe modeling workshops at the Department of Insurance.

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SOURCE Consumer Watchdog