Tod Kiryazov Co-founder / Product | Insurify
California is set to implement new regulations that require insurance companies using predictive formulas to justify wildfire insurance rate increases to also write more policies in high-risk areas. This reform aims to address the limitations of Proposition 103, which allows insurers to propose rate increases for future losses but does not mandate coverage for all residents.
Commissioner Ricardo Lara's initiative seeks to reduce reliance on California’s last-resort FAIR Plan, which has seen a rise in policies due to insurers pulling back from high-risk areas. According to an insurance department press release, the state had 408,432 active FAIR Plan policies amounting to about $393 billion in total exposure as of June.
“Climate change is affecting every part of our lives, making insurance harder to find and more costly for those at the greatest risk,” said Lara. “With climate-driven mega-fires burning across the state, it is clear that relying on decades-old regulations only hurts our ability to prepare for the future.”
California’s home insurance costs have remained relatively low despite significant climate risks. The average annual premium for $300,000 of dwelling coverage is $1,782, below the national average of $2,377. However, standard policies in higher-risk areas may exclude wildfire damage, forcing residents to turn to the FAIR Plan. The average annual cost of a basic FAIR Plan policy is about $2,709.
Lara advocates updating regulations beyond historical catastrophe factors based on past wildfire losses. He argues that this method leads to rising premiums after major disasters without considering ongoing risk-mitigation efforts by the state and individuals.
“Over the past several years, the state has put billions toward wildfire mitigation efforts and homeowners have made significant investments in home hardening,” said Lara. “Under Prop. 103’s existing regulatory framework, this is not accounted for by our existing retrospective models for ratemaking.”
Kim George, battalion chief of South Lake Tahoe Fire Rescue, supports incorporating local mitigation efforts into new catastrophe models: “The hope is that this catastrophe modeling will take such things into consideration.”
The department believes the regulation may not significantly affect housing costs and could increase housing availability through expanded coverage options. However, it acknowledges potential adverse economic effects statewide due to reduced competition with out-of-state insurers.
Residents were invited to submit feedback until Sept. 17 during a virtual public hearing. Following this period, a partnership with Cal Poly Humboldt was announced to develop a public wildfire-catastrophe model.
“We are harnessing the power of California’s unparalleled academic institutions for a public wildfire catastrophe model that will be the first in the world,” said Lara.
The strategy group will present recommendations aligned with the proposed regulation by April 2025.
---
Alerts Sign-up