Deal with state would bring home insurers back to fire-prone California

Insurance commissioner agrees to relax regulations, give faster approval for rate hikes

Deal Would Bring Home Insurers Back to California

A photo illustration of California Department of Insurance Commissioner Ricardo Lara (Getty, California Department of Insurance)

California’s top insurers may once again cover homes in fire-prone areas.

The insurance companies, which pulled back from the state market, have cut a deal with California Insurance Commissioner Ricardo Lara to return to the high-risk fire zones, the Los Angeles Times reported.

In exchange, the firms would be able to get faster approvals for higher rate increases.

The announcement followed a collapse in negotiations in Sacramento over how to fix the troubled home insurance market.

Gov. Gavin Newsom also issued an executive order commanding the insurance commissioner to “take prompt regulatory action to strengthen and stabilize California’s marketplace” — and consider whether emergency action was needed.

The changes are set to go into effect by the end of next year. Many hope that insurers will return to write new homeowners policies before then.

Insurers such as State Farm, USAA and Allstate all have requests for rate increases pending with the state Department of Insurance and seek respective hikes of 28.1 percent, 30.6 percent and 39.6 percent.

If approved, each company would be allowed to get its sought-for rate increases, but the increase can be distributed differently among homeowners. A cabin in the woods might see a 200 percent jump, while a home in the city could see little to no change.

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Since the massive fire years of 2017 and 2018, home insurers have gradually withdrawn from the most fire-prone areas of California.

As a last resort, homeowners and businesses in those areas have turned to California’s Fair plan, a backstop insurance provider funded by the companies that do business in the state, which charges much higher rates but gives less coverage in high-risk areas. 

The number of Fair plan policies more than doubled since 2018, up to 3 percent of the state market.

Under the new deal, insurers have agreed to return to those fire risk zones “up to a certain threshold equivalent to 85 percent of their statewide market share,” according to the Times. In return, Lara has offered to relax some insurance regulations.

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Lara said he plans to allow insurers to use catastrophe modeling that takes into account the projected impacts of climate change and other factors when asking to raise rates. He also said that insurers will be allowed to include reinsurance costs for California coverage in rate filings.

Companies will be allowed to use these models only if they comply with their commitment to increase coverage in the state and reduce the Fair plan population.

Lara also said he aims to fast-track the pace of rate approvals and hire more staff to process filings.

— Dana Bartholomew