Major insurance companies support California home insurance plan for high fire risk areas

A highly anticipated piece of California’s plan to entice home insurers back into the state received support from representatives of major companies during a public hearing Wednesday.

Insurers will commit to writing more policies in areas with high wildfire risks as part of a proposed agreement. In return, they will be allowed to use computer models to project future losses when asking the Department of Insurance to increase their rates.

Large companies have restricted or dropped business in recent years, blaming catastrophic wildfires, high costs to rebuild homes and state regulations for their pullback. That has sent the state’s insurance market into turmoil.

Karen Collins, a vice president at the American Property Casualty Insurance Association, said Wednesday that the group supports “the intent” of the plan. Seren Taylor a lobbyist for the Personal Insurance Federation of California said the overall framework of the agreement “seems reasonable.”

The deal is part of a series of proposed changes to state law promoted by Insurance Commissioner Ricardo Lara as a way to stabilize California’s tumultuous market.

Homeowners have seen a rapid decrease in coverage options and a growing number are having to rely on the California FAIR Plan, a state-created private insurer of last resort.

As part of the new proposal, the department released ZIP codes and counties where insurers would be expected to write more polices. It factored in wildfire risks, the percentage of homes that are on the FAIR plan, the average cost of insurance and the per capita income level in each of the districts, when coming up with the lists.

Still, some communities feel left out.

“There is some concern that not all the areas that are in crisis are covered,” said Jolena Voorhis, a lobbyist for the League of California Cities.

Insurance companies are not allowed to use computer models when asking to change their rates for policies in the state. They must anticipate claims by looking at the past 20 years, a mandate trade groups argue is obsolete. California is the only state that forces companies to do so.

Under the agreement, companies will be allowed to use those models if they say they will cover a certain number of homes in high risk areas or increase the number of policies they have in those areas by 5%.

Michael Delong, a research and advocacy associate with the Consumer Federation of America, called the 5% threshold a “loophole.” He said it should be eliminated, adding the proposal had “too many ways for insurers to argue or evade their way out of serving Californians.”

Carmen Balber, executive director for Consumer Watchdog, an advocacy organization, said allowing companies two years to increase their coverage in the areas is another loophole. She said the plan should specifically outline how the department will enforce the commitments companies make.

The proposed rule is still under review and is expected to be finalized by the department before the end of the year.

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