Expansion of CA Insurance Coverage?
In mid December 2024, California Insurance Commissioner Ricardo Lara enforced his “first of its kind” strategy to increase insurance coverage in wildfire-distressed areas of the state. The new regulation will require home insurers that do business in California to offer policies in areas that are prone to wildfires. For the past 30 years, California regulations have required insurance companies to apply a catastrophe factor to insurance rates based on historical wildfire losses. These outdated rules have contributed to rate spikes and balloon premiums following major wildfire disasters without fully accounting for the growing risk caused by climate change or risk mitigation measures taken by communities or regionally, as a result of local, state, and federal investments.
Commissioner Lara’s strategy addresses major limitations of Proposition 103, passed by voters in 1988. Under that law, insurance companies are free to propose rates at any level needed to cover future losses but, unlike public utilities, are not required to cover all residents. Major companies have increased rates while pulling back from higher-risk properties, resulting in areas where the CA FAIR Plan is now the only option for many consumers.
What it means: Expanding coverage for Californians in wildfire-distressed areas
Major insurance companies must increase the writing of comprehensive policies in wildfire distressed areas equivalent to no less than 85% of their statewide market share, whereas there is no current legal requirement today for insurers to commit to providing any coverage in high-risk areas. Smaller and regional insurance companies must also increase their writing.
Result of expanded public engagement: The new regulation is the result of expanded public engagement. The Department of Insurance held three workshops and hearings in 2024, which were attended by more than 1,000 interested parties, gathering input and receiving hundreds of public comments which helped shape this regulation. Commissioner Lara has met with tens of thousands of Californians since taking office as well as testifying at four legislative briefings about his Sustainable Insurance Strategy over the past year.
Incorporation of wildfire mitigation efforts: Building on Commissioner Lara’s “Safer from Wildfires” initiative — the nation’s first wildfire safety discount program — the regulation requires catastrophe models to account for mitigation efforts by homeowners, businesses, and communities, something not currently possible under existing outdated regulations today.
Ensuring the integrity of models: As part of implementing the new regulation, Commissioner Lara announced the hiring of Kara Voss as model advisor — a newly created position at the Department — to oversee the process of examining model integrity and ensuring public review in accordance with the newly established regulation. Voss has expertise in catastrophe modeling for wildfire and flooding events as a member of the Climate and Sustainability Branch. Under the regulation, once a model has undergone a pre-application required information determination (PRID), insurance companies can utilize that model in a rate filing listing their commitments to write more policies. The Department will accept PRID petitions starting January 2, 2025 and expects the process to be complete within months.
Supporting a public model: The regulation supports the development of a public catastrophe model, currently being considered by a strategy group of researchers and education leaders led by Cal Poly Humboldt. Recommendations on how to create a public catastrophe model are due from the strategy group to Commissioner Lara by April 2025.
Click here to read the full media release from the Department of Insurance website.