A claims observe professional who desires to stay nameless commented to me on the latest Los Angeles Instances article relating to wildfire victims and State Farm with the next:
Regulators have a troublesome alternative: Will we regulate the ‘sale’ of insurance policies, or will we regulate ‘supply’ of the product? There’s a compelling purpose to deal with gross sales. A regulator’s prime concern is solvency. Premiums assist solvency whereas indemnity and repair prices erode the corporate’s monetary situation.
So the deal with Market Conduct Examinations (MCEs) has just about been about value and promise, not on the myriad methods insurers can delay or underperform on claim-handling duties. It shouldn’t be a shock to study {that a} fledgling NAIC employed McKinsey & Firm again within the Nineteen Seventies to advise regulate insurers; McKinsey leveraged this engagement to assist many private strains insurers redesign their techniques to both adjust to its new strategies or to offer the looks of compliance.
We’re now in a world the place insurers need claims individuals to be referred to as ‘declare professionals,’ however they don’t need licensure, elevated schooling necessities, declare practices surveillance, fact-finding, or remedial actions like sanctions and suspensions. Insurers have an actual drawback with staffing on the claims facet, and it’s not only a matter of assembly the {qualifications}. The work of dealing with the general public’s troubles is difficult. It shouldn’t be however usually is … confrontational. Not each worker can take that day in and day trip!
Pulitzer Prize–successful investigative journalist Paige St. John’s latest Los Angeles Instances article exhibits what occurs when regulators lean too closely towards overseeing the sale of insurance coverage and never sufficient towards making certain its efficiency. The headline to her story emphasizes the purpose: “L.A. Fireplace Victims Say State Regulators Ignored Complaints About State Farm.” 1
In response to the article, greater than a dozen owners and their representatives reported that the California Division of Insurance coverage did little to resolve complaints about delays, denials, low rebuilding estimates, and sluggish funds of further dwelling bills. Some policyholders stated they had been informed to cease speaking with criticism handlers. Others discovered their recordsdata closed whereas their claims had been nonetheless very a lot in dispute. One home-owner described sending emails “into oblivion” whereas wrestling with ever-changing adjusters and unresolved smoke harm points.
These aren’t summary compliance issues. They’re household and neighborhood issues. They’re the distinction between returning dwelling and dwelling in limbo. Insurance coverage has a big effect on communities attempting to rebuild after a big scale catastrophe.
The article additionally particulars how a senior regulator who sharply criticized State Farm’s claims dealing with was disciplined after a State Farm lawyer complained to division management. Whether or not one agrees together with her tone or not, the optics are troubling. When these inside a regulatory company who push arduous on behalf of policyholders are sidelined, it sends an uncomfortable message to different regulators.
In the meantime, State Farm was pursuing charge will increase and non-renewing tens of 1000’s of insurance policies whereas dealing with the most important share of wildfire claims. That’s exactly the strain the nameless professional described. Premium adequacy and solvency dominate regulatory consideration all through the nation. When that occurs, claims supply turns into a secondary concern till catastrophe strikes. Then the general public learns that criticism items are understaffed, claims enforcement authority is proscribed, and even when compliance regulators see potential violations, they could not be capable to act and even inform the policyholder of what they discovered.
This isn’t simply taking place in California. Nearly each state insurance coverage division presently faces the identical subject and rigidity as a result of property insurance coverage corporations are charging extra and turning into extra discerning with underwriting. Insurance coverage affordability is the present large subject. However what about claims efficiency?
Insurance coverage shouldn’t be a commodity product like a toaster or an apple. It’s a contract with a future promise. The true check of that promise shouldn’t be on the level of sale however in the meanwhile of loss. If regulators focus overwhelmingly on charge filings, actuarial fashions, value, and capital reserves whereas treating claims dealing with as a customer support subject somewhat than a core regulatory perform, the system turns into unbalanced.
In my opinion, the claims division is the insurance coverage firm. Advertising sells the dream. Underwriting costs the chance. Claims is the place the promise and the product is both honored or damaged.
If insurers need their claims personnel to be thought to be professionals, then professionalism should include requirements, extra stringent licensure, extra schooling, clear efficiency metrics, and significant oversight. There needs to be penalties when systemic underperformance is uncovered. Docs, legal professionals, and engineers function beneath that framework. Why ought to the individuals entrusted with figuring out whether or not a wildfire sufferer can rebuild their life be held to much less?
Regulators do face troublesome decisions. Solvency issues. We don’t want hole insurers unable to pay claims. However solvency with out accountability relating to fulfilling the promise shouldn’t be stability however imbalance. The insurance coverage corporations and their representatives need the supply of the insurance coverage product to be one through which the patron can not maintain the insurer accountable for non-performance.
So, my view is that Paige St. John’s reporting forces asking the uncomfortable query: Who regulates the supply of the promise?
Till regulators give equal weight to how claims are dealt with as they do to how insurance policies are offered, wildfire survivors and victims of each different disaster will proceed to really feel that they’re navigating crucial monetary occasion of their lives alone, and sometimes with out significant civil strategies to privately implement accountability.
In case you are concerned about additional studying on this subject, I counsel: Wrongful Claims Apply Regulation Is Ineffective, and Why Florida’s New Market Conduct Examination Legal guidelines Imply Nothing.
Thought For The Day
“The time is all the time proper to do what is true.”
—Martin Luther King Jr.
1 St. John, Paige. “L.A. fireplace victims say state regulators ignored complaints about State Farm.” Los Angeles Instances, Feb. 19, 2026; up to date Feb. 21, 2026. Accessible on-line (subscription required): https://www.latimes.com/enterprise/story/2026-02-19/la-fire-victims-say-state-regulators-ignored-complaints-about-state-farm