Insurance companies that had stopped providing home coverage to many Californians as wildfires became more destructive will now be required to offer policies in fire-prone areas if they wish to continue doing business in California. This regulation, announced by Insurance Commissioner Ricardo Lara, mandates insurers to increase their coverage by 5% every two years until they reach 85% of their market share. For instance, if an insurer writes 20 out of every 100 policies, they must write 17 in a high-risk area.
Major insurers like State Farm and Allstate had ceased writing new policies in California due to concerns over potential losses from wildfires and other natural disasters. In return for increasing coverage, the state will allow insurance companies to pass on reinsurance costs to consumers. Reinsurance helps insurers manage large payouts in cases of natural disasters. Currently, California is the only state that doesn’t allow reinsurance costs to be transferred to policyholders.
Critics argue this could raise premiums by 40% and that new policies won’t be introduced quickly enough. The proposal is under review by the Office of Administrative Law and is expected to take effect within 30 days. Commissioner Lara emphasized that Californians need a stable insurance market that doesn’t abandon communities vulnerable to wildfires and climate change.
This new rule is part of efforts to encourage insurers to continue operating in California. A separate rule allowing insurers to consider climate change when setting prices will take effect soon. These measures aim to reduce reliance on the California FAIR Plan, designed as a temporary insurance safety net for those in wildfire-prone areas. The number of people on the FAIR Plan has more than doubled since 2020, reaching nearly 452,000.
Wildfires have intensified in California due to hotter and drier conditions. Of the 20 most destructive wildfires in state history, 14 have occurred since 2015. The 2018 Paradise fire, which killed 85 people and destroyed about 11,000 homes, left many struggling to find insurance. Steve Crowder, the mayor of Paradise, lost his home and business but has since rebuilt. However, he faced difficulties securing adequate insurance and had to rely on the FAIR Plan, which under insures his home.
Residents face similar challenges, with insurance costs rising significantly since the Camp Fire. Some have given up on trying to find coverage. Despite efforts to attract insurers back by implementing safety ordinances, skepticism remains. Mayor Crowder acknowledges the potential benefits of the new rules but remains cautious, stating that while
