California Mandates Insurers to Offer Coverage in Fire-Prone Areas Under New Regulation
Insurance companies that previously halted home coverage for hundreds of thousands of Californians in wildfire-prone areas must resume offering policies if they want to continue operating in the state, according to a regulation unveiled on Monday by California Insurance Commissioner Ricardo Lara.
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The new rule requires insurers to gradually expand coverage in high-risk zones, marking a first for the state. Insurers must increase their coverage in such areas by 5% every two years, eventually reaching 85% of their market share. For instance, an insurer writing 20% of California’s policies must eventually write 17% in high-risk zones.
This regulation aims to stabilize California’s insurance market as major providers like State Farm and Allstate have withdrawn from issuing new policies due to significant wildfire risks.
In return for expanding coverage, insurers will be allowed to pass reinsurance costs onto consumers, a practice not previously permitted in California. Reinsurance, often used by insurers to mitigate potential catastrophic payouts, could result in increased premiums for policyholders, with critics warning of potential hikes of up to 40%.
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Consumer Watchdog President Jamie Court criticized the rule, calling it “a plan of the insurance industry, by the insurance industry, and for the industry.”
The regulation is pending approval from the Office of Administrative Law and is expected to take effect within 30 days.
“Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change,” Lara stated, describing the move as a “historic moment for California.”
The rule complements another recent regulation allowing insurers to factor climate change into pricing, which takes effect this week. Insurers had previously restricted new policies in the state, citing their inability to include climate change in rate calculations.
The changes aim to reduce reliance on the California FAIR Plan, a last-resort insurance option for high-risk areas that provides limited coverage. FAIR Plan enrollment has more than doubled since 2020, reaching nearly 452,000 policies this year.
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California has faced increasingly severe wildfires as hotter, drier conditions fuel larger and more destructive blazes. Fourteen of the state’s 20 most destructive wildfires have occurred since 2015, including the 2018 Camp Fire in Paradise, which claimed 85 lives and destroyed 11,000 homes.
Steve Crowder, mayor of Paradise, said his town has struggled with insurance availability since the disaster. Crowder, whose family enrolled in the FAIR Plan, said their $5,000 premium covers their home for $100,000 less than its value, with contents only half-insured.
Crowder noted premiums have surged from $1,200 annually before the Camp Fire to as much as $20,000 for larger homes, forcing some residents to forego insurance entirely.
While the town has introduced fire safety ordinances to attract insurers, Crowder remains cautious. “Anything that will help get insurance in California, period, is helpful,” he said. “But let’s wait and make sure it happens before we get excited.”