Wildfire-prone Calif. to consider new insurance pricing rules

Unlike most states, California tightly restricts how insurance companies can price policies. Companies aren't allowed to factor in current or future risks when deciding how much to charge for an insurance policy. Instead, they can only consider what's happened in the past on a property to set the price.

At a time when climate change is making wildfires, floods and windstorms more common, insurers say that restriction is making it increasingly difficult for them to truly price the risk on properties.

It's one reason why, in the past year, seven of California's top insurance companies have paused or restricted new business in the state.

A recent report from First Street Foundation said about one-quarter of all homes in the nation are underpriced for climate risk in insurance.

On Thursday, California Insurance Commissioner Ricardo Lara said the state will write new rules to let insurers look to the future when setting their rates. But companies will only get to do this if they agree to write more policies for homeowners who live in areas with the most risk - including communities threatened by wildfires.

"Everyone is harmed if an insurance company goes insolvent because it cannot pay its claims," Lara said at a news conference.

The American Property Casualty Insurance Association, which represents insurers, called Lara's actions "the first steps of many needed to address the deterioration" of the market.