Lara takes major step to increase insurance availability in wildfire-distressed areas

Insurance Commissioner Ricardo Lara announced the California Department of Insurance has submitted the final wildfire catastrophe modeling regulation to the Office of Administrative Law for approval.

This "first-of-its-kind in California's history" regulation strengthens Prop. 103 by establishing unprecedented coverage commitments from insurance companies, aimed at stabilizing the insurance market and expanding options for homeowners and business owners in high wildfire-risk areas. The submission follows several months of extensive public input, expert consultations, and multiple public hearings and workshops held by the department.

"Consumers want solutions to our state's insurance crisis," said Lara. "My new regulation will make insurance more available across the state," said Lara. "As California experiences more intense climate impacts, technology will tell us where the risks truly are and accurately price rates that reflect mitigation and hardening investments."

Under Prop. 103, insurance companies are allowed to raise rates on homeowners, businesses and consumers, but are not legally required to offer coverage in wildfire-prone areas. This new wildfire catastrophe modeling regulation, as part of Lara's comprehensive Sustainable Insurance Strategy, introduces a requirement for insurers to increase their policy offerings in underserved areas as a condition of incorporating catastrophe modeling into ratemaking.

Providing insurers the ability to better assess risk allows them to more accurately price insurance and make coverage more available to homeowners and businesses who live and operate in wildfire-prone areas all the while ensuring that insurance companies commit to increase their writings of these wildfire distressed properties across the state.

In addition, over the past several years, California has invested billions of dollars in wildfire risk reduction and, under Lara's leadership, the department has implemented several programs designed to reward homeowners and businesses for safety improvements, such as home hardening, property mitigation, and other fire-resistant modifications. These programs are intended to align insurance practices with the state's overall wildfire mitigation efforts and investments, which must also be incorporated into catastrophe models as part of this regulation.

The Sustainable Insurance Strategy has already led major insurers like Allstate and Farmers to announce plans to resume or expand their coverage offerings in California when its reforms take full effect.

Key highlights of the wildfire catastrophe modeling regulation include:

* Expanded public engagement: The Department held three workshops and hearings in 2024, which were attended by more than 1,000 interested parties, gathering input and receiving hundreds of public comments which helped shape this regulation.

* Increased coverage in high-risk areas: Insurance companies must increase the writing of comprehensive policies in wildfire distressed areas equivalent to no less than 85% of their statewide market share, whereas there is no current legal requirement for insurers to commit to providing any coverage in high-risk areas.

* Incorporation of wildfire mitigation efforts: Building on Commissioner Lara's "Safer from Wildfires" initiative — the nation's first wildfire safety discount program — the regulation requires catastrophe models to account for mitigation efforts by homeowners, businesses, and communities, something not currently possible under existing outdated regulations today.

* Enhanced model integrity: The Department is finalizing the hiring of a model advisor to examine model integrity, and ensure public review and compliance with Prop. 103.

* Implementation timeline: Once approved by OAL, the regulation should take effect by year's end, with the model review process set to begin on January 1, 2025.

In a parallel initiative, Lara and Cal Poly Humboldt have established a strategy group to develop the nation's first public wildfire catastrophe model. This partnership with California's research institutions is designed to create an accessible, science-based model for predicting wildfire risks, ultimately supporting fair and accurate insurance rates. Expected to provide recommendations by April 2025, the group will further support California's efforts to build safer communities and expand insurance options statewide.

By increasing insurance availability, the department's approach aims to achieve greater affordability and stability within California's insurance and real estate markets. The department is on track to complete the regulatory reforms under Lara's comprehensive Sustainable Insurance Strategy by the end of 2024 in order to address current climate risks and increase insurance protection for California consumers.

The department's role includes regulating insurers to ensure accountability, confirm that claims are paid and verify that consumers are not charged beyond what is necessary and fair. Furthermore, through the department's rate regulation experts, each and every rate application filed will be thoroughly reviewed to make sure they are compliant with insurance laws, justified and transparent under Prop. 103, and that consumers are protected.

The Office of Administrative Law is now reviewing the regulation for compliance and, once approved, it will become effective by the end of December 2024. This submission represents a significant milestone in Lara's efforts to modernize California's insurance market with transparent, accountable, and consumer-focused solutions.