California cuts insurance deal forcing home coverage in fire zones — but it could raise prices [The Sacramento Bee]

After years of insurance woes for California homeowners living in wildfire-prone areas, Gov. Gavin Newsom and state officials will move to stabilize the market for providers and residents.

Insurance Commissioner Ricardo Lara on Thursday announced his office had reached an agreement with homeowner and commercial property insurance companies that would push them to take on more customers in high fire-risk areas in exchange for allowing them to use catastrophe modeling to set rates.

Lara’s announcement came after Newsom issued an executive order asking for “prompt regulatory action” to shore up the state’s insurance framework, which is collapsing under the strain of increasingly intense wildfires.

By December 2024, the California Department of Insurance will require insurance companies to write at least 85% of their statewide market share in fire-distressed areas selected by the commissioner. The companies must also help return homeowners using the California FAIR plan — considered the state’s “insurer of last resort” — to the regular insurance market.

The expensive state plan has become the only option for some homeowners looking to insure their houses from fire damage after being dropped from their conventional plans or being denied coverage.

In exchange for taking on riskier customers, companies will be permitted to use catastrophic modeling to set insurance rates, a practice Lara’s office did not previously allow.

Consumer Watchdog blasted the deal, saying Lara has “given into the industry’s demands,” and insurance companies will use the new modeling tools to drive up consumer costs.

“The use of catastrophic modeling and adding of reinsurance costs to premiums has pushed Florida premiums up two to three times higher than California’s,” said Jamie Court, president of Consumer Watchdog, in a statement. “California is in danger of becoming Florida with these changes that mimic the failed strategies in the Florida.”

California insurance crisis

Newsom’s order and Lara’s announcement come just weeks after the commissioner and the governor failed to secure an eleventh-hour deal with lawmakers to stop California insurance providers from fleeing the state.

California’s insurance crisis exploded after a wave of devastating wildfires in 2017 and 2018 caused billions of dollars in damages. Insurance companies dropped tens of thousands of mostly rural homeowners, who were then required to pay two to three times as much for alternate coverage.

Since then, two of California’s largest insurance providers, Allstate and State Farm, stopped selling new policies to homeowners across the state, regardless of whether they live in fire-prone areas. And Farmers Insurance announced it would start capping the number of new policies it writes.

In some rural parts of the state, homeowners can get insurance only through the state’s FAIR plan. This drives up costs significantly because homeowners then need to acquire separate writings for burglary and other risks.

Sean Lomen, a Colfax city councilman and retired fire captain, said many of his friends and constituents who were policyholders for more than 30 years were dropped by their insurance providers in recent years.

“It seems insurance companies have drawn an arbitrary line at about 2,000 feet of elevation in the foothills and Sierra (Nevada) and are canceling policies,” he said. “They’re just taking their money and running.”

The city of Colfax adopted a defensible space ordinance last year that requires homeowners to remove hazardous debris and vegetation within 100 feet of a structure. Lomen said he’d like to see more insurance companies look at properties individually and take those proactive steps into account before making blanket decisions to drop homeowners in certain parts of the state.

“All of us in urban interface areas that bump up against U.S. forestland or state parks are kind of faulted for being close to these under-maintained areas, it seems like,” he said. “I think current measures taken by community members should be the heavier weight when looking at considerations on coverage.”

After the legislative deal imploded, Assembly Speaker Robert Rivas, D-Hollister, said that lawmakers would hold a series of public hearings this fall focusing on access to insurance coverage.

“Our mission has always been to ensure homeowners and businesses across California can access and retain comprehensive insurance coverage,” Rivas said in a statement.

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