Insurance Is Changing in California. Here’s What You Need to Know

Insurance companies must provide policies in wildfire-prone areas if they want to continue doing business in California, according to a new state regulation announced on Monday.

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The new rule will require home insurance companies to increase coverage in high-risk areas for the first time, ensuring “more options for Californians while limiting the costs passed on to consumers,” California Insurance Commissioner Ricardo Lara’s office said in a statement.

Newsweek reached out to Lara’s office via email for comment.

Why It Matters

The regulation is the final measure in a package of home insurance reforms designed to ease the home insurance crisis in California and provide more coverage options for Californians.

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Some major insurers have said they will stop offering new policies or limit coverage in California, citing concerns about huge losses from wildfires and other disasters.

Wildfires in California become more frequent and destructive in recent years due to climate change. Homeowners in areas threatened by wildfires have faced limited options and high premiums.

What To Know

The regulation requires insurers to increase the writing of comprehensive policies in fire-prone regions by 5 percent every two years until they reach the equivalent of 85 percent of their market share.

That means an insurer with a 20 percent market share in the state’s insurance market would have to write at least 17 percent of the policies in a high-risk area.

In return, the regulation will allow insurance companies to pass on reinsurance costs to consumers. Insurers typically acquire reinsurance from other larger insurers to avoid large payouts in case of wildfires and other catastrophic events.

California is the only state that doesn’t already allow the cost of reinsurance to be included in premiums, Lara’s office said.

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Lara’s office also announced a regulation this month that will allow insurers to use catastrophe modeling, with input from a range of meteorological and geographical data, when writing their policies.

What People Are Saying

California Insurance Commissioner Ricardo Lara said in a statement: “Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change.

“This is a historic moment for California. My Sustainable Insurance Strategy is focused on addressing the challenges we face today and building a resilient insurance market for the future. With input from thousands of residents throughout California, this reform balances protecting consumers with the need to strengthen our market against climate risks.”

Opponents of the regulation say that could hike premiums by 40 percent or more.

Jamie Court, president of Consumer Watchdog, to the Los Angeles Times: “Tellingly the commissioner did not do a cost impact analysis of his plan on consumers. That’s because this plan is of the insurance industry, by the insurance industry, and for the industry.”

What’s Next

The Office of Administrative Law must review the regulation before it can take effect.