The state on Monday announced another regulation aimed at alleviating California’s home insurance crisis, with insurance companies charging higher premiums to homeowners to protect against catastrophic wildfire claims. This allows for claims to be made.
The rule, the last in a housing insurance reform package led by Insurance Secretary Ricardo Lara, will allow insurers to pass the cost of reinsurance on to consumers.
Insurance companies typically obtain reinsurance from other large insurance companies to limit payouts in the event of a major wildfire or other disaster.
This is the first time in California that insurance companies can include reinsurance costs in their premiums, although this is common in other states.
The regulations are intended to make the market more attractive to home insurers, who have been pulling out of the state’s home insurance market due to losses from wildfires.
“Californians deserve a reliable insurance market that does not back away from communities most vulnerable to wildfires and climate change,” Lara said in a prepared statement. “This is a historic moment for California.”
The ministry said it would limit the burden on consumers by tying reinsurance premiums to industry standards that cannot be exceeded.
The department also said that to take advantage of the new rule, insurers must increase comprehensive home insurance coverage in wildfire-impacted areas every two years until they represent 85% of the state’s total market share. He said it needed to be increased by 5%. . This means that an insurance company with a 10% share of California’s home insurance market would have to write 8.5% of its policies in such areas.
The ministry released preliminary maps of the area this year. Neighborhoods in Southern California include zip codes in Malibu, Beverly Hills, and other mountain communities. Homeowners in these areas are increasingly flocking to FAIR plans, the last insurer in the state that doesn’t offer comprehensive coverage.
The 85% formula is similar to another key element of the Lara reform, which allows insurers to use so-called “catastrophe models” when setting premium rates. The model is a computer program that attempts to predict the likelihood and cost of disasters such as wildfires, using complex variables as well as historical losses. The industry argues they are essential because climate change is making wildfires more common and more damaging.
Several large wildfires have broken out in Southern California this year. These include the 4,000-acre Franklin Fire, which destroyed 20 structures in Malibu, and the nearly 20,000-acre wildfire in Ventura County, which destroyed 243 structures.
But neither came close to the damage caused by a series of fires in 2017 and 2018, including those that burned much of the Paradise region of the Sierra Nevada foothills. The fire burned 153,000 acres, destroyed 18,800 buildings, and killed 85 people. The department said losses for insurance companies, including two fires in Southern California, exceeded $12 billion.
Several insurance companies have stopped writing new home insurance policies, and State Farm General, the state’s largest home insurer, announced earlier this year that it would not renew the policies of 72,000 California property owners. did. But recently, when Farmers Insurance, citing Lara’s reforms, announced that it would increase the number of policies for homeowners and resume writing new policies for condominiums, renters, and landlords, there were some good news. There was news.
The regulations announced Monday still must be reviewed by the Office of Administrative Law before becoming law.
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