California has announced a new state regulation that requires insurance companies to provide coverage in high-risk wildfire areas. This move aims to address the growing concern of homeowners in these areas struggling to find insurance.
KEY PROVISIONS OF THE NEW RULE
- Insurance companies must offer coverage in high-risk areas, increasing their coverage by 5% every two years.
- Insurers must reach 85% of their market share in high-risk areas.
- Companies can pass on reinsurance costs to consumers.
BACKGROUND AND RATIONALE
Wildfires have become increasingly destructive in California, with 14 of the top 20 most destructive wildfires occurring since 2015. Major insurers like State Farm and Allstate have stopped writing new policies in California due to fears of massive losses.
REACTION AND CONCERNS
While the new rule has been welcomed by some, others have expressed concerns that it may lead to higher premiums for consumers. Opponents argue that the rule does not require new policies to be written quickly enough and may result in premium hikes of up to 40%.
IMPACT ON HOMEOWNERS
The new rule aims to help homeowners in wildfire-prone areas who have struggled to find insurance. However, some homeowners, like Steve Crowder, the mayor of Paradise, California, remain skeptical about the effectiveness of the new rule.
ADDITIONAL DETAILS
- The new rule does not explicitly prevent insurance companies from canceling current clients.
- The ultimate goal of the new rules is to transition homeowners out of the California Fair Access to Insurance Requirements (FAIR) Plan, which often serves as a last resort for those living in areas threatened by wildfires.
- The number of people on California’s FAIR plan has more than doubled between 2020 and this year, reaching nearly 452,000 policies.
- Insurance Commissioner Ricardo Lara also unveiled another rule earlier this month, allowing insurers to consider climate change when setting their prices.
NEXT STEPS
The requirement is currently under review by the Office of Administrative Law and is expected to take effect within 30 days.
