Latest reports suggest that 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 the state.
The new state regulation, which was announced on Monday, requires home insurers to offer coverage in high-risk areas, something the state has never done, the office of the California insurance commissioner, Ricardo Lara, 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 such as State Farm and Allstate have stopped writing new policies in California due to fears of huge 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 policyholders, according to Lara’s office.
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Opponents of the rule say that could increase 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 the 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 California’s 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 country’s most populous state. He presented another rule earlier this month to let insurers consider the climate crisis when setting their prices. Insurance companies have said that because they can’t consider the climate crisis in their rates, many opted to either pause or restrict new business in the state. The new rule to include the climate crisis in rates will take effect later this week.
Story was adapted from the Guardian.
