Landmark Regulations to Encourage Insurers to Write More Policies in Wildfire Neighborhoods
New Rules to Stabilize California’s Troubled Home Insurance Market
Under new regulations released by the state, insurers will be able to set rates by drawing on a wide range of meteorological, geographic, and other data in establishing rates, rather than largely relying on historical losses. The change is intended to stabilize California’s troubled home insurance market, which has been affected by global warming and a number of devastating wildfires.
Insurers to Account for Climate Change and Fire Resistance
The insurance industry argued that the change was imperative given global warming’s role in a number of wildfires, including in 2017 and 2018 when thousands of homes burned down. In setting their rates, insurers must also account for efforts to make properties fire resistant.
Mixed Response from Consumer Advocates
The new regulations drew support from the industry and others, including farm and environmental groups, but a mixed response from consumer advocates. Los Angeles group Consumer Watchdog contends that the computer models will be a "black box" that will lead to sharp premium hikes.
Regulations Take Effect January 2
The regulations, which take effect January 2, arose out of a broad agreement between the insurance commissioner and the industry. The agreement gave insurers regulatory concessions, including the use of the computer models, in exchange for a commitment by large insurers to write policies in neighborhoods prone to wildfires equivalent to 85% of their statewide market share.
Changes to Insurance Market
The changes come as residents living in mountainous and hillside neighborhoods have found insurance harder to come by, forcing them to buy bare-bones policies from the FAIR Plan, the state’s insurer of last resort, which has seen its risk exposure mushroom from $153 billion in 2020 to $458 billion as of September.
Process for Reviewing Catastrophe Models
The regulations establish a process by which the so-called "catastrophe models" can be reviewed by the state and the public. The department has also hired an expert in a newly created position to oversee the process of examining model integrity and ensuring public review.
Consumer Watchdog’s Concerns
Consumer Watchdog has argued that the review process will still allow the modeling companies and their client insurance companies to keep essential elements of the proprietary models out of the public’s eye, violating the public review provisions of Proposition 103. The group also contends there are loopholes that will allow insurers to skirt the 85% coverage threshold.
Conclusion
The new regulations aim to stabilize California’s troubled home insurance market by allowing insurers to set rates based on a wide range of data, including climate change and fire resistance. While consumer advocates have expressed concerns, the regulations are intended to increase insurance access for residents living in neighborhoods prone to wildfires.
Frequently Asked Questions
Q: What are the new regulations intended to achieve?
A: The regulations aim to stabilize California’s troubled home insurance market by allowing insurers to set rates based on a wide range of data, including climate change and fire resistance.
Q: How will the regulations affect insurance rates?
A: The regulations will allow insurers to set rates based on a wide range of data, which may lead to changes in premium prices.
Q: What is the 85% coverage threshold?
A: The 85% coverage threshold requires large insurers to write policies in neighborhoods prone to wildfires equivalent to 85% of their statewide market share.
Q: What is the process for reviewing catastrophe models?
A: The regulations establish a process by which the catastrophe models can be reviewed by the state and the public. The department has also hired an expert to oversee the process of examining model integrity and ensuring public review.
