SACRAMENTO, Calif. (AP) — Insurance companies that stopped providing home coverage to hundreds of thousands of Californians in recent years as wildfires became more destructive will have to again provide policies in fire-prone areas if they want to keep doing business in California under a state regulation announced Monday.
The rule will require home insurers to offer coverage in high-risk areas, something the state has never done, Insurance Commissioner Ricardo Lara's office said in a statement. Insurers will have to start increasing their coverage by 5% every two years until they hit the equivalent of 85% of their market share. That means if an insurer writes 20 out of every 100 state policies, they'd need to write 17 in a high-risk area, Lara's office said.
Major insurers like State Farm and Allstate have stopped writing new policies in California due to fears of massive losses from wildfires and other natural disasters.
In exchange for increasing coverage, the state will let insurance companies pass on the costs of reinsurance to California consumers. Insurance companies typically buy reinsurance to avoid huge payouts in case of natural disasters or catastrophic loss. California is the only state that doesn’t already allow the cost of reinsurance to be borne by policy holders, according to Lara's office.
Opponents of the rule say that could hike premiums by 40% and doesn't require new policies to be written at a fast enough pace. The state did not provide a cost analysis for potential impact on consumers.
“This plan is of the insurance industry, by the insurance industry, and for the industry,” Jamie Court, president of Consumer Watchdog, said in a statement.
The requirement is under review by the Office of Administrative Law before it takes effect within 30 days.
“Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change,” Lara said in a statement. “This is a historic moment for California.”
The new rule is part of Lara's effort to persuade insurers to continue doing business in the nation’s most populous state. He unveiled another rule earlier this month to let insurers consider climate change when setting their prices. Insurance companies had said that because they can’t consider climate change in their rates, many opted to either pause or restrict new business in the state. The new rule to include climate change in rates will take effect later this week.
The ultimate goal of the new rules is to get homeowners out of the California Fair Access to Insurance Requirements (FAIR) Plan, which often serves as the last resort when insurance companies stop providing coverage for those living in areas threatened by wildfires, Lara's office said. The plan could help a homeowner fulfill insurance requirements imposed by mortgage companies, but it is mainly designed as a temporary safety net with basic coverage until policyholders find a more permanent option. The number of people on California’s FAIR plan more than doubled between 2020 and this year, reaching nearly 452,000 policies.