Mercury to seek new home insurance rates using California’s risk modeling system

Mercury Insurance is preparing to file updated home policy rates in California using a new catastrophic modeling system designed to give property owners a lifeline to more affordable coverage in wildfire-prone areas.

The company said it is looking to offer homeowners an alternative to the California Fair Access to Insurance Requirements, or FAIR Plan, an insurer of last resort. The policies rates would apply to anyone who wants Mercury Insurance coverage, even in designated wildfire areas.

So far, other insurance providers have yet to announce if they will follow Mercury’s lead.

FAIR Plan policies have skyrocketed in recent years after traditional insurers stopped writing new policies while canceling others as wildfire damages mounted. As of June, the FAIR Plan’s total exposure was $650 billion, reflecting a 42% increase since September 2024, and a 289% increase since September 2021.

The coverage Mercury will offer is based on a new risk modeling formula adopted last week by the California Department of Insurance. As yet, no rates are available from Mercury because its filing with CDI hasn’t been submitted.

The modeling formula — called the Verisk Wildfire Model — was adopted July 24 by the CDI to push more insurance companies to write policies in wildfire-distressed areas.

The system relies on data analytics and software tools designed to help businesses, primarily within the insurance industry, assess and manage various types of risks. It uses wildfire science, engineering and climate data to provide a forward-looking view of risk.

“This closes one of the biggest coverage gaps across the state,” said CDI Commissioner Ricardo Lara in announcing the Verisk Wildfire Model adoption.

In coming weeks, the CDI expects to consider two other risk-managing programs offered by Karen Clark & Co. and Moody’s RMS for wildfire-distressed areas in order to stimulate underwriting by insurers.

As of Tuesday, July 29, Mercury is the only homeowners’ insurance provider in California making its way through the approval process to get new rates approved, according to Jeff Schroeder, Mercury’s vice president and chief product officer. The rate filing is expected to be submitted to the CDI in “the next few weeks,” and could go into effect in the first half of 2026, he said.

CDI spokesman Michael Soller could not immediately confirm this timeline but did say that Mercury’s announcement represents a “significant” sign of “future expansion in the market.”

Also see: Advocates push for mandatory retrofitting of existing homes in fire zones

“On a go-forward basis, as we get these rates, we are going to be in a position to be successful writing in those areas. That’s our goal,” Schroeder said. The rates, he said, will “vary significantly across different areas and customer types. There are different factors that are utilized to price (the premium on) an individual home” — including hardening homes in wildfire-prone areas.

The company’s last rate increase in March totaled “a little bit more than $100 million,” or a hike of about 12% in premiums in California, according to Schroeder, whose company operates in 10 other states.  The company isn’t saying whether the rates are cheaper than FAIR or if they offer more coverage, because the rate case hasn’t yet been filed.

“It’s the goal of the commissioner and the (CDI) to get more carriers with the right rates in the right areas, and give customers another market to utilize as opposed to the FAIR Plan,” he said. “We would anticipate that we would be taking customers, and hopefully other companies can get in there and do the same, that otherwise would go to the FAIR Plan.”

Mercury says it has been carrying its own risk by underwriting policies in the area of wildfire distressed areas. On Jan. 7, the same day as the L.A. wildfires erupted, Mercury became the first company to begin writing new homeowners’ insurance policies in Paradise, after it was destroyed by the Camp fire in November 2018. The fire burned more than 153,000 acres and claimed 85 lives.

Ever since, the company said it’s been building a “climate science team” to tackle the impact of extreme weather events. It recently appointed Steve Bennett, who previously ran the Institute for Risk Management and Insurance Innovation with the University of North Carolina at Chapel Hill, to head up the team.

A FAIR spokesman declined to speculate on “potential impacts” the new CDI policy might have on the insurer of last resort.

The property insurance market has been reeling after a series of devastating wildfires over the last decade.  Earlier this year, the state’s insurer of last resort charged a $1 billion special assessment to private insurance providers after a record number of FAIR Plan claims were filed. For its part, Mercury paid $50 million, Schroeder said.

Many insurers either halted or slowed writing policies long before the January wildfires.

There were 451,799 residential policies held by the FAIR Plan as of September 2024 — only four months before the January wildfires in the Pacific Palisades and Altadena areas. By June 2025, the FAIR Plan recorded 590,642 policies, a 30.7% increase since the fall, and a 152.1% increase since September 2021 when the insurer of last resort held 234,277 policies, according to statistics published by the FAIR Plan.

Skeptics disagree with Mercury

Critics are casting doubt that the CDI’s new policy will slow the pace of FAIR Plan sign-ups.

“What we’ll see playing out in the next few months is that the promise of affordable insurance was false,” said Carmen Balber, executive director of the Santa Monica-based advocacy group Consumer Watchdog. “The significance is that there won’t be a big, dramatic change in insurance tomorrow, but consumers will continue to see rates rise and access go down.”

She expects a flood of insurance companies to file new ratemaking cases based on the new modeling formula for California’s 1.5 million homeowners in wildfire distressed areas. Balber’s concern is that the catastrophe models were written behind “closed doors” and little is known about what variables go into them.

“There’s a lack of transparency,” Balber said. “The insurance and risk modeling companies don’t open up the algorithm for public or regulatory verification. There is a list of things that the model will have to disclose, and there also is a bunch of stuff they will not have to disclose.

“We still need reforms in the market that would make sure if you meet all the state fireproofing guidelines, then you can buy insurance in California,” she said. “But there’s nothing in what the CDI has done that provides homeowners that kind of protection. We’ve just given the insurance industry new tools to raise rates.” Related Articles

Balber couldn’t immediately say if her organization would challenge in court the Verisk or other risk-modeling formulas.

In April, Consumer Watchdog filed a lawsuit against CDI and Lara to stop potentially hundreds of millions of dollars in “surcharges” State Farm wants to charge homeowners in order to cover claims from January’s fires. The suit challenges a plan approved by Lara in 2024 that permits insurance companies to pass through costs to policyholders for their share of an assessment issued by the FAIR Plan.

The January firestorms in the Pacific Palisades and Altadena killed at least 31 people, destroyed 18,294 buildings, homes and structures, and burned 37,509 acres.

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