SACRAMENTO, Calif. — A new state regulation announced on Monday mandates that insurance companies providing home coverage in California must resume offering policies in areas at high risk for wildfires if they wish to continue operating in the state. This decision comes in response to the growing destruction caused by wildfires, which has led many insurers to stop covering homes in vulnerable regions, impacting hundreds of thousands of residents.
According to a statement from the Insurance Commissioner’s office, this regulation will require insurers to gradually increase their coverage for these high-risk areas by 5% every two years until they reach 85% of their market share. For instance, if an insurer accounts for 20% of the policies in the state, they would need to cover 17% in wildfire-prone locations, thus ensuring a greater presence in these crucial markets.
Major insurance providers such as State Farm and Allstate have previously halted new policy offerings in California, largely due to concerns over significant potential losses arising from wildfires and other natural disasters. In exchange for expanding coverage in these areas under the new rule, insurers will be allowed to pass some of the reinsurance costs onto consumers. This marks a notable shift; California has been the only state where policyholders could not bear these expenses commonly incurred by insurers to safeguard against catastrophic losses.
Critics of the regulation argue that it could lead to an increase in premiums by as much as 40%, and they also express concerns over the pace at which new policies are being issued. The state has not released an analysis regarding the financial implications for consumers, and some voices in the community feel that this regulation primarily benefits the insurance industry itself. Jamie Court, president of Consumer Watchdog, described the regulation as being crafted for the benefit of the insurance sector rather than individuals in need.
Before the regulation takes effect in 30 days, it will undergo scrutiny by the Office of Administrative Law. Insurance Commissioner Ricardo Lara noted the importance of a stable insurance market, stating, “Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change.” He characterized this initiative as a historic moment for the state.
This regulation is part of Lara’s broader initiative to encourage insurers to continue providing coverage in California, which has the highest population in the nation. Earlier this month, he also introduced a new rule allowing insurers to factor in climate change when establishing their rates, a change that was reportedly a significant barrier leading many companies to halt or restrict new business in the state. This climate-centric pricing rule is expected to be implemented shortly.
One of the primary objectives of these new regulations is to reduce reliance on the California Fair Access to Insurance Requirements (FAIR) Plan, which is often seen as a last resort for homeowners whose coverage has been denied due to wildfire threats. The FAIR Plan was designed to provide essential coverage until individuals can secure more comprehensive insurance options. However, the number of policies under the FAIR Plan has surged dramatically, more than doubling since 2020 to nearly 452,000 policies.
Historically, wildfires have always posed a challenge in California, especially given its arid climate. However, recent years have seen climate change intensify the severity and frequency of these fires. Of the 20 most destructive wildfires recorded in state history, 14 occurred since 2015, as reported by California’s Department of Forestry and Fire Protection.
The devastating 2018 wildfire in Paradise resulted in the loss of 85 lives and the destruction of approximately 11,000 homes. Many locals continue to struggle with finding adequate insurance. Mayor Steve Crowder, who lost both his house and business, reported that although his family has rebuilt their home, securing insurance has proven to be a significant challenge. After enrolling in the FAIR Plan, he noted that despite paying about $5,000 annually, his coverage is significantly below his home’s actual value, with contents only partially insured.
Crowder expressed that many of his constituents are facing similar difficulties, as annual insurance premiums have skyrocketed from around $1,200 before the Camp Fire to between $5,000 and $20,000 now, depending on the home’s size and location. Some residents have given up on finding coverage entirely. In the aftermath of the Camp Fire, Crowder’s town implemented new safety ordinances aimed at attracting insurers by enhancing the resilience of structures against wildfires through better design and vegetation management.
While the town’s mayor is hopeful that the new regulations will help improve access to insurance, he maintains a cautious outlook, acknowledging a collective skepticism among residents. “Anything that will help get insurance in California, period, is helpful,” Crowder commented, but he added, “Let’s wait and make sure it happens before we get excited.”
