California’s New Insurance Regulation Requires Increased Coverage in High Fire-Risk Regions

January 3, 2025 TruthUSA

Residents of the state “deserve a dependable insurance market that doesn’t withdraw” from at-risk communities, stated insurance commissioner Ricardo Lara.

On December 30, California’s insurance commissioner introduced a new regulation aimed at ensuring that residents in wildfire-prone areas have access to homeowner insurance policies.

Homeowners across the state have faced challenges in keeping their insurance coverage intact after numerous major insurers either withdrew or significantly raised their rates.

Commissioner Lara’s regulation is designed to bring stability back to the market while addressing the increasing risks, he mentioned in a statement released on Monday.

“Californians deserve an insurance market they can rely on, which does not turn its back on communities particularly susceptible to wildfires and climate change,” Lara stated. “This marks a historic moment for California.”

The new mandate requires insurance companies operating in California to issue at least 85 percent of their policies in regions susceptible to wildfires. Companies that do not meet this standard will be obligated to raise their number of such policies by 5 percent every two years until compliance is achieved.

Currently, there are no legal requirements for insurers to offer coverage in high-risk zones, as per Lara’s office.

Lara’s regulation also contains a stipulation that will prevent firms from transferring reinsurance costs to their policyholders.

“Reinsurance” serves as a financial mechanism for insurers to balance their risk profiles. Often described as “insurance for insurance companies,” this method offloads risk to the reinsurance firm, which assumes either all or a portion of one or more policies, as explained by the National Association of Insurance Commissioners (NAIC).

In all other states, reinsurance costs can be included in premium rates. A 2023 analysis by the state’s Insurance Department and Ceres, an organization dedicated to climate change policy, found that reinsurance is the primary strategy most insurers employ to persist and grow coverage in higher-risk zones, according to Lara.

Insurance companies will also be barred from engaging in “model shopping,” or selecting risk models that yield higher rates for customers. Lara’s plan allows for the use of forward-looking catastrophe models rather than limiting companies to historical loss-based rate calculations.

Firefighters battle the Franklin Fire in Malibu, Calif., on Dec. 10. (Jae C. Hong/AP Photo) — Firefighters combat the Franklin Fire in Malibu, Calif., on December 10. Jae C. Hong/AP Photo

The new regulations complement additional reforms that Lara has initiated to broaden coverage options for residents of the state, as stated by his office.

Out of the top twelve insurance companies, seven—including California’s largest insurer, State Farm—have ceased writing new policies in California over the past three years.

Numerous companies have pointed to wildfire risks and stringent insurance regulations as reasons for their withdrawal from the state.

In contrast, Farmers Insurance has resumed writing certain types of policies as of December 14 and has increased the number of homeowners’ policies available.

President of the Personal Insurance Federation of California, Rex Frazier—an organization advocating for several insurance companies—expressed hope for further transformation in December.

“The announcement from Farmers shows that considerable progress has been made, and we should expect to see more changes,” Frazier stated to The Epoch Times. “We hope to see additional announcements like this and start witnessing small improvements that pave the way … leading to more significant change.”

However, one critic of Lara’s new regulation argues that it would only elevate homeowner expenses.

According to the nonprofit consumer group Consumer Watchdog, based in Los Angeles, the reinsurance regulation could enable insurers to hike home insurance premiums by up to 50 percent without delivering a meaningful rise in wildfire coverage, a claim made in a Facebook post on Thursday.

“This plan serves the interests of the insurance industry, by the insurance industry, and for the insurance industry,” declared Jamie Court, president of Consumer Watchdog. “The commissioner has disregarded public commentary opportunities on the regulation before its finalization by issuing it on an emergency basis. This is a blatant power grab.”

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