California reveals fire-prone areas it wants insurers to cover

California reveals fire-prone areas it wants insurers to cover

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(Bloomberg) –California, rushing to halt an exodus of property insurers fleeing wildfire risk, has designated regions of the state where companies will be required to provide coverage in exchange for new industry-friendly regulations. 

The map encompasses fire-prone areas across much of Northern California and large swathes of the Central Coast, as well as northwest of Los Angeles and east of San Diego. About half of the state’s 58 counties are represented, either entirely or partially. 

“People can live across the street or down the block, but have a completely different reality when it comes to their fire risk,” Insurance Commissioner Ricardo Lara told reporters Wednesday. “That is the complexity and the diversity of California’s geography and the reality of our insurance marketplace.”

The details are part of California’s plan to revamp its home-insurance market after companies such as Allstate Corp. paused new coverage and State Farm General Insurance Co. said it won’t renew 72,000 home and apartment policies after big losses from wildfires. 

Faced with rising risks tied to climate change, the state is developing rules to allow insurers to request rate increases based on forward-looking catastrophe models — computerized simulations of potential disasters – instead of historical data. Companies will be allowed to use the predictive models once the new rules are implemented, but they must first publicly commit to underwriting new policies in wildfire zones.

“As the climate crisis has rapidly intensified, the insurance system hasn’t been seriously reformed in 30 years,” Governor Gavin Newsom said in a statement. “This is part of our strategy to strengthen our marketplace and get folks the coverage they need.”

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Larger insurers will be required to increase their presence in high-risk areas to a level that’s equivalent to at least 85% of their statewide market share. In other words, if a company writes 20 out of 100 homes statewide, it would have to cover 17 out of 100 homes in an area distressed by wildfire. 

The regulations also target more coverage in ZIP codes where at least 15% of residents rely on the state-run FAIR Plan for coverage, counties where over 20% of homes are considered at risk, and low-income communities that are burdened by high premiums. 

Non-compliance could result in a reassessment of rates or restrictions on the use of forward-looking models, Lara said.

“Everything that we are doing now is with one central fact in mind: The clock is ticking,” he said. 

Consumer Concern

Consumer advocates warned that the proposed regulations, which are meant to require insurers to increase sales to homeowners in “distressed areas,” wouldn’t require companies to charge a price that customers can afford. 

Allowing significant price hikes based on proprietary algorithms risks driving premiums even further out of reach for many Californians, said Carmen Balber, executive director of Consumer Watchdog. 

“Insurance Commissioner Lara’s plan gives insurance companies two years to comply but they can start to charge more immediately,” she said. “After two years, if insurance companies can say they can’t meet their goals the commissioner can just move the goal posts. This was the one consumer benefit in Lara’s proposal but the exceptions swallow the rule.”