State insurance commissioner announces enforcement of regulation to expand insurance coverage across state

On Friday, California Insurance Commissioner Ricardo Lara enforced his "first of its kind" catastrophe modeling and ratemaking regulation, a central part of his Sustainable Insurance Strategy to increase coverage in wildfire-distressed areas of the state.

The Department of Insurance posted the final regulation after the Office of Administrative Law filed it with the Secretary of State, officially concluding a rulemaking process that saw strong public support over the past year.

"Giving people more choices to protect themselves is how we will solve California's insurance crisis," said Commissioner Lara. "For the first time in history we are requiring insurance companies to expand where people need help the most. With our changing climate we can no longer look to the past. We are being innovative and forward-looking to protect Californians' access to insurance."

Under the new regulation, major 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 today for insurers to commit to providing any coverage in high-risk areas. Smaller and regional insurance companies must also increase their writing.

The new regulation is the result of expanded public engagement. The Department of Insurance 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. Commissioner Lara has met with tens of thousands of Californians since taking office as well as testifying at four legislative briefings about his Sustainable Insurance Strategy over the past year.

Building on 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for mitigation efforts by homeowners, businesses, and communities, something not currently possible under existing outdated regulations today.

As part of implementing the new regulation, Commissioner Lara announced the hiring of Kara Voss as model advisor — a newly created position at the Department — to oversee the process of examining model integrity and ensuring public review in accordance with the newly established regulation.

Voss has expertise in catastrophe modeling for wildfire and flooding events as a member of the Climate and Sustainability Branch. Under the regulation, once a model has undergone a pre-application required information determination, or PRID, insurance companies can utilize that model in a rate filing listing their commitments to write more policies.

The department will accept PRID petitions starting January 2, 2025 and expects the process to be complete within months.

The regulation supports the development of a public catastrophe model, currently being considered by a strategy group of researchers and education leaders led by Cal Poly Humboldt. Recommendations on how to create a public catastrophe model are due from the strategy group to Commissioner Lara by April 2025.

Fixing outdated rules that contribute to higher costs, fewer policies

For the past 30 years, California regulations have required insurance companies to apply a catastrophe factor to insurance rates based on historical wildfire losses. These outdated rules have contributed to rate spikes and balloon premiums following major wildfire disasters without fully accounting for the growing risk caused by climate change or risk mitigation measures taken by communities or regionally, as a result of local, state, and federal investments.

Commissioner Lara's strategy addresses major limitations of Proposition 103, passed by voters in 1988. Under that law, insurance companies are free to propose rates at any level needed to cover future losses but, unlike public utilities, are not required to cover all residents. Major companies have increased rates while pulling back from higher-risk properties, resulting in areas where the FAIR Plan is now the only option for many consumers.

In June, the department released a first-ever map showing where FAIR Plan policies have grown and the traditional insurance market has retreated. This regulation focuses on reversing FAIR Plan growth as a result of insurance companies committing to write more in high risk areas through the use of wildfire catastrophe models in ratemaking.

"Solving our wildfire crisis requires bold action to protect our communities," added Commissioner Lara. "Insurance rates now must account for the billions spent on wildfire mitigation, including community efforts and home hardening. This all-hands effort by my Department has achieved decades-overdue reforms in just one year, ensuring consumers benefit from more accurate rates and better risk assessment."

"Formal adoption of the Department's regulation to allow Catastrophe Models to be used in setting property insurance rates in California means insurers have gotten one of the highest priority wish list items they've said they need in order to open back up for business in our state. That news, combined with the announcement by Farmers Insurance, should give consumers hope that competition and options will be returning," said Amy Bach on behalf of the nonprofit United Policyholders whose team is fanned out across the state helping people deal with home insurance non renewals and tough choices.

"Catastrophe models are essential for modeling perils like flood and wildfire that are now worsening as the planet warms. I am especially pleased to see the Department of Insurance requiring that these models incorporate the best scientific information on risk reduction from a property to landscape scale," said Carolyn Kousky, associate vice president for economics and policy, Environmental Defense Fund. "Lowering risks is essential and models must reflect those investments so insurers can incorporate them into pricing and underwriting — and in a timely way."

"The parcel- and community-level mitigations included in CDI's Safer from Wildfire Framework, and the very similar parcel level mitigations included in the IBHS Wildfire Prepared Home, represent a science-based approach to creating fire-adapted communities that can be in or adjacent to the inevitable wildfire perimeters without experiencing catastrophic loss," said Dave Winnacker, fire chief, Moraga-Orinda Fire Protection District. "The science is crystal-clear, that at the community level we have agency to reduce wildfire risk using CDI's recommendations."