On September 21, 2023, a new Executive Order granting authorization to the Insurance Commission was issued by California’s Governor with the stated goal of addressing the state’s shrinking insurance market, primarily due to the rising risk of wildfires. Major insurers, like State Farm and Allstate, have stopped issuing new policies in California, while Farmers imposed restrictions on new homeowners’ policies. The order allows insurers to consider climate risks when setting rates to prevent them from exiting the California market, with the goal of getting insurers back into the market so that homeowners and businesses remain covered.
The state’s insurance commissioner, Ricardo Lara, supports this “emergency regulatory action” because the existing framework doesn’t meet consumers’ needs for prompt and affordable insurance. Insurance prices haven’t kept pace with increased wildfire risk, impacting insurer profitability.
Several large insurers have already ceased or plan to cease issuing new policies in California, even with approved or pending rate increases. This results in more Californians struggling to secure coverage, especially in fire-prone areas. The FAIR Plan, a state-mandated safety net, has seen a significant increase in policies issued due to limited private insurance availability in high-risk areas.
California currently restricts how insurers can price policies, focusing on historical data, not current or future risks like climate change. The Governor’s order aims to expand the Insurance Commissioner’s regulatory authority, including climate risks in rate-setting to increase coverage options, particularly in wildfire-prone areas.
The order also streamlines the approval process for insurance plans and instructs collaboration between the Department of Finance and Department of Insurance to implement new regulations. The goal is a balanced approach that maintains fair prices while addressing climate change threats. For property owners, any movement to resolve the coverage issues will be a welcome relief, though we all can expect increases in our base premiums to manage the additional risks facing us and by extension our insurance carriers.