In a significant development aimed at overhauling California’s insurance landscape, Insurance Commissioner Ricardo Lara announced sweeping reforms on Wednesday designed to bolster coverage in high-risk wildfire zones across the state.
The reforms, disclosed during a press briefing, mandate that insurance companies increase their policy offerings in areas prone to wildfires if they wish to utilize forward-looking catastrophe models in rate setting. Notably, insurers must now take into account the wildfire mitigation efforts undertaken by policyholders when assessing risk.
Under the new regulations, insurance firms are required to specify the geographical areas where policies are written in their rate filings. The California Department of Insurance will rigorously enforce compliance with these guidelines using its existing authority.
Lara emphasized the need for inclusive policies that cater to the diverse risks faced by Californians. “Whether you reside in the Sierra Nevadas, coastal regions, or urban centers, California’s insurance landscape cannot afford a one-size-fits-all approach,” Lara stated. “Our reforms are poised to facilitate greater insurance accessibility, particularly for those currently reliant on the FAIR Plan due to elevated wildfire risks.”
Originally intended as a last-resort option, the FAIR Plan has increasingly become the sole accessible insurance option for many, as premiums have surged amid escalating wildfire threats.
In a move to stimulate competition and align pricing with ongoing wildfire mitigation efforts, larger insurers must now cover at least 85% of properties in distressed areas within two years of adopting revised rates. Companies already meeting this threshold must maintain existing policies for a three-year period. Meanwhile, smaller and newer insurers, along with those predominantly operating outside high-risk areas, must expand their policy offerings by a minimum of 5%.
Shannon Douglass, President of the California Farm Bureau, welcomed the reforms, noting, “Competition will incentivize insurers to reflect wildfire mitigation efforts in their pricing, including initiatives by farmers and ranchers aimed at fuel removal and property protection.”
Furthermore, Lara’s department unveiled a detailed map pinpointing wildfire risk zones and concentrations of FAIR Plan policies across California. Developed in collaboration with Cal Fire, the map identifies ZIP codes with over 15% FAIR Plan policies and counties where more than 20% of policies are classified as high risk.
Areas heavily reliant on FAIR Plan coverage and facing heightened wildfire risks include vast stretches of Northern California and the Sierra Nevada region. In contrast, lower-risk areas with fewer FAIR Plan policies include substantial portions of the Bay Area, as well as urban areas surrounding Sacramento, Fresno, Bakersfield, Los Angeles, and San Diego.
State Fire Marshal Daniel Berlant underscored the significance of interagency cooperation, stating, “Commissioner Lara’s initiatives align closely with Cal Fire’s wildfire preparedness efforts and complement the state’s substantial investments in community protection.”
Lara framed Wednesday’s announcement as the initial step in a comprehensive yearlong initiative aimed at modernizing California’s insurance regulations. Governor Gavin Newsom, advocating for enhanced transparency and expedited rate approval processes, underscored the reforms as pivotal amidst intensifying climate challenges.
“As the climate crisis escalates, our insurance framework — largely unchanged for three decades — necessitates revitalization to fortify our marketplace and safeguard Californians,” Newsom remarked.
The reforms, slated to take effect immediately, mark a pivotal juncture in California’s efforts to adapt its insurance sector to the evolving realities of climate change and wildfire risks.
