Reform made real — California Department of Insurance completes final evaluation of innovative forward-looking model to address California's coverage crisis

Insurance Commissioner Ricardo Lara is finalizing his landmark Sustainable Insurance Strategy, a comprehensive plan aimed at addressing the state's insurance availability crisis.

Today the Department completed its review of the first forward-looking wildfire catastrophe model.

"For the first time in California history, insurance companies will be required to write more policies in wildfire-distressed areas," said Lara. "This closes one of the biggest coverage gaps across the state. Under existing regulations, insurers have raised rates without guaranteeing coverage or committing to Californians, causing distress for homeowners. That ends now."

What it means

Expanding coverage for Californians in wildfire-distressed areas

With the most destructive wildfires in California history happening in the past decade — even before the unprecedented Los Angeles wildfires in January 2025 — people are paying more and getting less in coverage options. Under the Sustainable Insurance Strategy's new regulations, insurance companies will write higher risk homes affecting more than 1.5 million homeowners in wildfire distressed areas and those on the FAIR Plan. This will expand options and contribute to wildfire safety efforts – helping to drive down costs.

Stable and sustainable insurance rates

Wildfire catastrophes are one factor driving up the cost of insurance rates, along with liability, inflation, building material costs, and other causes. Under the previous system of historical data, insurance consumers are paying balloon premiums and rate spikes after major wildfires, without increased availability. Wildfire catastrophe models will contribute to more stable and sustainable insurance rates, without year-to-year fluctuations following major disasters — while reflecting the best available scientific data on mitigation efforts for the first time by homeowners, businesses, local communities, state and federal governments, and utility companies.

"Only in California" requirement to write more policies

Wildfire catastrophe models have existed for more than 20 years, and every other U.S. state allows insurance companies to set their rates using this modeling. But California is the only state where insurance companies will commit to writing more policies in higher risk areas under the Strategy.

Thorough review with public input

The Department's Model Advisor led an extensive and thorough six-month process to vet the integrity of the Verisk Wildfire Model for the United States that was open to public participation. The Department's regulation provides a focused, transparent, and efficient way for insurance companies to utilize a model in a rate filing. The Department posted a letter confirming the completion of its review of the Verisk Wildfire Model for the United States, and is currently reviewing models submitted by Karen Clark and Company and Moody's.

View more information at the Department's website.

Staying on time and on track despite Los Angeles wildfires

Commissioner Lara opened the model review on Jan. 2, 2025, which was days before the devastating Los Angeles wildfires. The Department has remained on time and on track while aggressively investigating consumer complaints from the Los Angeles wildfires, resulting in more than $67 million returned to wildfire survivors to date since January.

Temporary coverage for homeowners and businesses

A new "high value" FAIR Plan commercial policy takes effect this Saturday, July 26, offering temporary coverage up to a total aggregate limit of $100 million per location for homeowners and condo associations, farms, and other businesses. The program would expire in 2028 once market improvements take hold.

Under Lara's strategy, insurers utilizing Department-reviewed wildfire catastrophe models will be mandated to provide and maintain coverage in wildfire-prone areas. This will also assist policyholders in transitioning out of the FAIR Plan and restore consumer options statewide. Following today's announcement, the Department will begin accepting rate applications from insurers using the Verisk Wildfire Model, detailing their plans to write and maintain more homeowners and commercial insurance policies in the voluntary market.

Unlike public utilities, which are legally obligated to provide service, insurance companies have not been required to offer coverage under Proposition 103.

For more than 30 years, insurers have increased rates — often with the agreement of intervenors like Consumer Watchdog — without any obligation to remain in the market. Consequently, many insurers raised prices, withdrew from California, and left consumers with limited choices and soaring premiums.

After gathering input from tens of thousands of Californians through statewide town halls and forums, Lara introduced his Sustainable Insurance Strategy, marking California's most significant insurance reform in over three decades. This reform requires insurers that utilize catastrophe modeling or account for reinsurance costs in their rate filings to write at least 85 percent of their statewide market share in wildfire-distressed areas, facilitating the transition of consumers off the FAIR Plan and expanding options in the voluntary market.

Historically, California has mandated that insurers use historical data to set future rates, a practice that has contributed to higher premiums and spikes when wildfire disasters intensify, prompting insurers to retreat from wildfire-prone regions. Between 1991 and 2015, California experienced four fires that destroyed more than 1,000 buildings each; since 2015, there have been 15 major fires resulting in 174 fatalities and the destruction of 55,528 buildings, according to CalFire – a key factor in rising insurance costs.

On average, Californians pay less than other large states for insurance, according to data from the National Association of Insurance Commissioners.

However, devastating wildfires have increased costs for many living in high-risk areas. Wildfire catastrophe models promise more sustainable and stable insurance rates that consider the benefits of wildfire safety and mitigation efforts undertaken by regions, neighborhoods, and individual homes. With Lara's recent regulatory changes, rates approved by the Department under the Sustainable Insurance Strategy will reflect the best available scientific data on mitigation efforts by homeowners, businesses, local communities, state and federal governments, and utility companies for the first time.

Lara began exploring the use of wildfire catastrophe models in 2019, shortly after taking office. Since then, the Department has focused on how insurance can better drive wildfire risk reduction, establishing new standards with emergency management agencies and collecting data on wildfire risks and losses. Today's announcement also builds on Lara's Safer from Wildfires regulation that introduced the nation's first mandatory wildfire insurance safety discounts in 2022.

"Past insurance commissioners ignored warning signs for decades, leaving consumers, homeowners, small businesses, and nonprofits to bear the consequences," said Lara. "If Californians are taking steps to mitigate wildfire risks, then insurance companies must fulfill their responsibilities and write more policies across the state."

To help stabilize coverage during the implementation of these reforms, Lara approved a temporary expansion of the FAIR Plan to include high-value commercial properties, such as homeowners associations, farms, and affordable housing developments.

Starting this Saturday, July 26, 2025, these entities will qualify for new FAIR Plan coverage with a total aggregate limit of $100 million per location. This expanded coverage will expire in 2028 as the private market recovers.