Insurance Commissioner Ricardo Lara has introduced significant regulatory changes to increase insurance coverage in California’s wildfire-prone areas. These reforms aim to address the challenges faced by residents and policyholders in high-risk regions.
The new regulations require insurance companies to write more policies in high-risk wildfire areas if they want to use forward-looking catastrophe models for setting rates. Insurers must also consider the efforts of policyholders to mitigate wildfire risks.
Insurance companies must specify the regions where they write policies when submitting rate filings, with the insurance department ensuring compliance. This is a crucial step towards more inclusive and effective insurance coverage across the state.
“Californians are frustrated with outdated regulations and desperate for change,” Lara said. “Whether you live in the Sierra, the foothills, along the coast, or in a city, California needs a tailored approach. We are enacting major reforms to increase the number of policies written, helping those stuck on the FAIR Plan due to wildfire risk.”
The FAIR Plan, initially a last-resort option, has often become the only available insurance for many residents as policy costs have surged. Under the new agreement, insurers must cover at least 85% of properties in distressed areas. Large companies must meet this threshold within two years of adopting a rate, while smaller companies and those operating mostly outside fire risk areas must expand their policy writing by at least 5%.
Shannon Douglass, president of the California Farm Bureau, highlighted the importance of competition in reflecting wildfire mitigation efforts in insurance pricing. “Competition is the first step to guide the market to a place where pricing reflects ongoing wildfire mitigation efforts undertaken by Californians,” she said.
Additionally, the insurance department has released a map highlighting areas with high wildfire risk and concentrations of FAIR Plan policies. This tool, developed with assistance from Cal Fire, provides insurers with the information needed to write more policies and use catastrophe modeling effectively.
High-risk areas identified include large portions of the North State and the Sierra, while lower-risk areas with fewer FAIR Plan policies include much of the Bay Area, Sacramento, Fresno, Bakersfield, Los Angeles, and San Diego.
State Fire Marshal Daniel Berlant praised the coordination between state agencies. “This type of alignment is critical for preparing communities for wildfire,” he noted.
Governor Gavin Newsom has supported these reforms, emphasizing the need for transparency and quicker rate change approvals. “As the climate crisis has intensified, the insurance system hasn’t been reformed in 30 years. This strategy strengthens our marketplace and ensures residents get the coverage they need,” Newsom said.
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