On June 12, 2024, the California Department of Insurance released a new draft regulation, which will require that insurers who use new catastrophe modeling in the writing of homeowners and commercial insurance policies in areas of the state with high wildfire risk must write policies in distressed areas, with larger insurance companies required to insure properties in distressed areas at a rate equal to 85% of the insurer’s statewide market share.
Under Proposition 103, enacted by California voters in 1988, insurance companies are legally free to choose where they write policies in California. As a result, insurance companies are writing more and more in areas of the state deemed less risky, especially with the continued threat of climate change. This most affects residents and business owners in areas with wildfire risk where the California FAIR Plan has become the only option for insurance, not the last resort as it was intended.
Under the Insurance Commissioner’s new Sustainable Insurance Strategy, insurance companies will be allowed to use forward-looking catastrophe models if, and only if, they increase writing of policies in these wildfire distressed areas, helping fix a fundamental shortcoming of Prop. 103.
The Department of Insurance released a statewide map that it developed, aligned with the California Department of Forestry and Fire Protection (CAL FIRE) Fire Hazard Severity Zones (FHSZ), showing areas where wildfire risk and FAIR Plan policies are concentrated, considering the state’s large population and complex geography. With this map, insurance companies will have direct knowledge of where they need to write more policies in the state in order to utilize catastrophe modeling in their rates that are subject to Department approval. The new draft regulations, wildfire risk maps, and coverage criteria can be found at https://www.insurance.ca.gov.
Source: California
Department of Insurance
Part of California’s Sustainable Insurance Strategy, June 2024
Insurance commitments for wildfire distressed areas based on catastrophe models.
Draft regulation text and maps available at: insurance.ca.gov
Areas of higher concentration of FAIR Plan policies and wildfire risk.
Areas of lower concentration of FAIR Plan policies and wildfire risk.
