California’s Insurance Commissioner, Ricardo Lara, has announced a new deal with the insurance industry that aims to encourage home insurers to provide coverage in the high-risk fire zones of the state. The agreement comes after a summer where many insurers had pulled back from these areas. In exchange for returning to these high-risk zones, insurers have been granted concessions that will make it easier for them to obtain higher rate increases more quickly through state regulators.
The hope is that this deal will lead to insurers writing new homeowners policies in California sooner. Several leading insurers, such as State Farm, USAA, and Allstate, have rate increase requests pending with the state insurance department. If approved, these companies would be allowed to raise their total premiums in the state by significant amounts. However, the distribution of rate increases among homeowners may vary depending on the location of their properties.
Since the devastating fire seasons of 2017 and 2018, home insurers have been gradually withdrawing from the most fire-prone parts of the state. As a result, homeowners and businesses in these areas have turned to the California FAIR plan, which provides insurance coverage at higher rates. The number of FAIR plan customers has more than doubled since 2018, accounting for 3% of the total state market.
Under the new agreement, insurers have committed to returning to the fire risk zones up to a certain threshold equivalent to 85% of their statewide market share. This means that major insurers will cover 85% of customers in these areas, with the FAIR plan and other higher-cost insurers covering the remaining 15%.
In exchange for their commitment, Commissioner Lara has agreed to loosen certain elements of insurance regulation in California. This includes allowing insurers to use catastrophe modeling that considers the projected impacts of climate change when requesting rate increases. Insurers will also be allowed to include reinsurance costs for California coverage in their rate filings. Furthermore, Lara aims to expedite the rate approval process and increase transparency by making intervenor filings public.
Overall, this new agreement is seen as a significant step towards stabilizing California’s insurance market and addressing the problems faced by residents and business owners due to reduced access to insurance in high-risk fire zones.
Frequently Asked Questions (FAQ)
What is the purpose of the new agreement?
The purpose of the new agreement is to encourage home insurers to provide coverage in California’s high-risk fire zones.
What concessions were granted to insurers?
Insurers were granted concessions that make it easier for them to obtain higher rate increases more quickly through state regulators.
Will insurers return to writing new homeowners policies in California?
The hope is that insurers will return to writing new homeowners policies in California sooner as a result of this agreement.
What percentage of customers in high-risk areas will major insurers cover?
Under the agreement, major insurers will combine to cover 85% of customers in high-risk areas, with the FAIR plan and other higher-cost insurers covering the remaining 15%.
What changes will be implemented in insurance regulation?
Insurance regulation will be loosened, allowing insurers to use catastrophe modeling that considers the impacts of climate change and include reinsurance costs for California coverage in rate filings.