California home insurance in high-risk wildfire areas could be easier to get under new plan

By Stephen Hobbs, The Sacramento Bee (TNS)

Thursday, June 13, 2024 | 2 a.m.

Homeowners in areas at high risk of wildfires could have an easier time finding insurance coverage in the future under an eagerly-awaited proposal released Wednesday by the Department of Insurance.

Under the plan, companies will commit to write policies for a certain number of homes in regions of the state considered at greater risk. In return, they will be allowed to use computer models to predict future loses when asking to raise their rates.

As part of Wednesday’s announcement, the agency released ZIP codes and counties that companies could target to qualify with the agreement.

The areas include El Dorado, Placer and Nevada counties.

“Insurance companies need to commit to writing more policies and my department will need to verify those commitments to hold companies accountable,” Insurance Commissioner Ricardo Lara said during a press conference.

The proposal needs to go through a regulatory review and is not expected to be implemented until next year, at the earliest. It will be discussed at a virtual hearing June 26. and is being closely evaluated by insurance companies and consumer groups.

Influential insurance groups were measured in their review of the plan.

“This proposal is complex, with many trade-offs, including insurer commitments that no other state requires,” Seren Taylor, a lobbyist and vice president of the Personal Insurance Federation of California, said in a statement. “However, we remain committed to working with all stakeholders to increase insurance availability and restore the health of the insurance market.”

Mark Sektnan, a lobbyist for the American Property Casualty Insurance Association said: “The only way to increase availability and consumer access to coverage is to restore the health of the market and remove the obstacles that led to this crisis in the first place. We remain committed to working with the Department to address these concerns and implement the other desperately needed reforms to fix the insurance crisis.”

The department cannot require companies to write policies. But it can try to entice them, which it is trying to do with this plan.

Companies will qualify under the agreement if they write a certain number of homes in high risk areas or if they commit to increasing the number of policies they have in those areas by 5%.

Currently, companies are not allowed to use computer models when asking to change their rates. They must anticipate claims by looking at the past 20 years, a requirement trade groups argue is obsolete. California is the only state that forces companies to do so.

If companies don’t meet either of the thresholds laid out in Wednesday’s announcement, the department could revoke an insurers’ ability to use the models.

That said, insurers have two years to meet the commitment. The timeline concerned Carmen Balber, executive director of Consumer Watchdog, an advocacy organization, as did other aspects of the proposal.

“This is the one piece of the entire plan that was supposed to be the consumer benefit and it contains a lot of loopholes,” Balber said.

Catastrophic wildfires, persistent inflation and greater risks of future fires due to climate change have led insurers to restrict, pause and drop business in the state in recent years. Many homeowners are facing large annual price increases or no options for coverage except with the California FAIR Plan, the state-created private insurer of last resort.

In response, Lara in September promised to make a series of rule changes with the goal of spurring companies to write more policies and give homeowners more options.

Lara said Wednesday’s announcement was “another massive component” of his strategy “that is going to be critical for us to get insurers to write again into these wildfire distressed areas.”