California Insurance Commissioner Ricardo Lara recently announced a package of executive actions aimed at increasing the availability of property insurance throughout the state.
Considered the largest insurance reform since state voters approved Proposition 103 nearly 35 years ago to protect consumers from arbitrary insurance rates and practices, the Sustainable Insurance Strategy is a comprehensive approach to modernising California’s insurance market.
The overhaul comes after several of California’s largest insurance companies announced in recent months that they would no longer write new homeowners policies in the state due to increased risk of natural disasters and rising construction costs. The plan addresses these climate-fueled problems, including global inflation and increased rebuilding costs, that have led to California’s insurance crisis.
“We are at an important insurance crossroads after several years of wildfires and storms, exacerbated by the threat of climate change. I am taking immediate action to implement lasting changes that will make Californians safer through a stronger, sustainable insurance market,” Lara announced on 21 September. “The current system is not working for all Californians and we must change course. I will continue to work with all those who want to work toward real solutions.”
In support of Lara’s actions, California Governor Gavin Newsom issued an executive order calling for immediate regulatory action.
“It is critical that California’s insurance marketplace works to protect homes and businesses in every corner of our state,” said Newsom. “A balanced approach that helps maintain fair prices and protections for Californians is essential.”
Key regulatory elements of the plan include
Executive action by Lara to move homeowners and businesses from the state-mandated FAIR (Fair Access to Insurance Requirements) Plan — which provides basic fire coverage to high-risk properties that cannot find insurance in the traditional marketplace — back into the mainstream insurance market. The FAIR plan can be expensive and only covers certain fire and smoke losses. It is seen as an insurance of last resort. Under the plan, insurance companies would commit to covering all parts of California by writing at least 85% of their statewide market share in communities at high risk of wildfire. For example, if a company writes 20 out of 100 homes statewide, it must write 17 out of 100 homes in an at-risk area.
Giving FAIR Plan policyholders who undertake wildfire mitigation activities as part of the state’s Safer from Wildfires framework first priority for transition to the open market.
Accelerate the Department’s implementation of new rules for reviewing climate catastrophe models that recognise the benefits of state and local wildfire safety and mitigation efforts.
Directing the FAIR Plan to further expand commercial coverage to $20 million per building to close insurance gaps for homeowners associations and condominium developments.
Hold public meetings to explore the inclusion of California-only reinsurance costs in rate filings.
Improve rate filing procedures and timelines by hiring additional division staff to review insurer rate filings.
Increased data reporting by the FAIR Plan to the Department, the Legislature and the Governor to monitor progress in reducing the number of policyholders.
Ordering changes to the FAIR Plan to prevent it from going bankrupt in the event of an extraordinary catastrophic event. This includes building up its reserves and financial safeguards.
“California Realtors thank and support Commissioner Lara for taking necessary action to strengthen and stabilise the state’s insurance market,” said Jennifer Branchini, President of the California Association of Realtors. “We look forward to working with the Commissioner and stakeholders to ensure that Californians have access to critical and reliable property insurance to protect their most valuable asset – their homes.”
Jim Hamilton, president of the Silicon Valley Association of Realtors, also welcomed the commissioner’s action.
“Our clients who want to buy property in the hillside areas are having a particularly difficult time getting insurance. This is delaying and in some cases breaking the deal for homebuyers. Insurance is a basic need for any property owner.
The Silicon Valley Association of Realtors (SILVAR) is a professional trade organisation representing 5,000 Realtors and affiliate members engaged in the business of real estate on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term Realtor is a registered collective membership mark identifying a real estate professional who is a member of the National Association of Realtors and who subscribes to its strict Code of Ethics.
