California’s plan to stabilize its home insurance market is now law. Will it work?

California's plan to stabilize its faltering home insurance market is now law, meaning homeowners in fire-prone areas and beyond may soon have an easier time finding coverage. But consumer advocates worry it will also mean steep rate hikes for many policyholders and remain skeptical that insurers will actually offer more policies.

In exchange for allowing insurers to raise rates based on the growing threat of climate change, a long-running industry demand, companies must now work to expand coverage in parts of the state with the greatest fire risk, California Insurance Commissioner Ricardo Lara announced Friday.

The plan also aims to entice insurers that have paused writing new policies anywhere in the state to resume accepting new customers.

"Giving people more choices to protect themselves is how we will solve California's insurance crisis," Lara said in a statement. "For the first time in history, we are requiring insurance companies to expand where people need help the most."

It's still unclear when insurers might start expanding coverage or how expensive new policies could be in fire-prone areas and elsewhere. It could take as long as two years or more before insurers develop standard policies based on the regulations and get state regulators to approve them.

But last week, Farmers Insurance, the state's second-largest homeowners insurance provider, announced it would increase the number of new California homeowners policies it writes each month from 7,000 to 9,500. In April, Allstate said it would consider resuming writing new policies.

"Insurers are committed to serving Californians and want to expand coverage," Mark Sektnan, a vice president with the industry group American Property Casualty Insurance Association, said in a statement. "Importantly, this regulation represents just one piece of the comprehensive reforms needed to restabilize California's insurance market."

Starting next year, the insurance department also aims to speed up its process for approving insurers' rate hike requests. And by the end of this year, it plans to finalize new rules about how companies can pass along to consumers their own costs for reinsurance against catastrophic losses.

After incurring billions in losses during recent devasting fire seasons, insurers have ended coverage for hundreds of thousands of policyholders in high-fire areas such as wine country, the East Bay Hills and the Santa Cruz Mountains. Homeowners unable to find traditional policies have been left to buy into the exorbitantly expensive FAIR Plan, the state's insurer of last resort.

And with some of the largest carriers, including Allstate and State Farm, having stopped writing new home insurance policies in the state, the lack of competition has likely contributed to premiums going up across California.

Consumer advocates maintain the deal Lara struck with the insurance industry will do little to benefit those struggling homeowners. They say allowing insurers to justify rate increases using what advocates describe as an opaque and possibly discriminatory "catastrophe modeling" process will lead to more steep rate hikes.

Currently, the state insurance department requires insurers to determine rates based on historical damages, which the industry argues has kept rates too low in many areas to offset the risks of climate change. All other states already allow insurers to use forward-looking catastrophe modeling, and many have higher rates than California.

Moreover, advocates contend the regulations lack teeth to ensure insurers write more policies in fire-risk areas.

"Full transparency is what keeps insurance rates honest but Commissioner Lara's rule does away with that protection," said Carmen Balber, executive director of Consumer Watchdog, in a statement. "The rule will let insurance companies raise rates based on secret algorithms but not expand coverage as promised."

Regulators have pushed back against such claims, noting the state insurance department must still approve policy changes or rate hikes.

As part of the new plan, insurers are expected to work toward collectively covering 85% of homes across designated fire-risk areas.

That includes vast swaths of the North and Central coasts, the Sierra Nevada Mountains and most of far Northern California, and in the greater Bay Area, Marin, Napa and Santa Cruz counties, a small portion of the East Bay hills, as well as parts of San Mateo and Sonoma counties and a sliver of Santa Clara County.

Insurers would also have to offer new policies for fire-risk homes in more urban areas such as the Oakland Hills and Los Gatos.