California aims to expand insurance coverage in fire-prone areas with new rules

California Insurance Commissioner Ricardo Lara announced the implementation of a regulation aimed at expanding insurance coverage in areas prone to wildfires Stateas insurance companies fled and homeowners struggled to find coverage in recent years.

The state will now allow insurers to use catastrophe models to determine rate increases in hopes of stabilizing the market, the head of the California Department of Insurance (DOI) said Friday. In return, insurers will be required to increase comprehensive coverage in fire-prone areas to at least 85% of their market share.

“Giving people more options to protect themselves is how we will solve California’s insurance crisis,” Lara said in a statement. “For the first time in history we are asking for this Insurance companies To expand to the places where people need help most.”

For 30 years before the rule change, the state required insurers to use historical wildfire losses to determine the catastrophe factor for rates, which led to higher insurance premiums in the wake of disasters, the Interior Department said.

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With the use of catastrophe models, which predict future losses, insurance companies will be able to take them into account Climate change risks as well as taking fire risk mitigation measures into account.

The goal is to attract insurers to these high-risk areas and provide more market options than California’s basic FAIR plan, which is left to many homeowners and businesses as a last resort in the absence of other options.

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Regulators hope the ability to raise rates more quickly will bring back insurers who have left the state. Under California’s previous rules, it could take years for insurers to get approval to increase premiums.

Many insurance companies have temporarily halted sales of new home insurance policies in California in recent years due to wildfires and the high costs of doing business in the state. Now, of the 12 largest insurers in California, only five are still writing new policies.

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after State farmCalifornia’s largest insurance company, announced earlier this year that it would cut 72,000 policies for homes and apartments in California due to inflation, regulatory costs and increased risks from disasters. Lara described the situation as a “true crisis.”

FOX Business’ Sunny Tsai contributed to this report.