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California insurers will have to sell coverage in wildfire-prone regions that have seen an exodus of insurance in recent years, state Insurance Commissioner Ricardo Lara announced Monday.
Under the new regulations, companies must make their services available in high-risk areas in order to do business in the state, the first such requirement in California history. Insurers must write policies that cover at least 85 percent of their statewide market share in these vulnerable regions, increasing that coverage in 5 percent increments every two years until they reach that threshold, he said. said Lara.
The commissioner’s office said the requirement will be limited to California, so consumers in the state won’t be on the hook for insurance costs in other high-risk areas, such as the Gulf Coast.
Lara said the rule aims to prevent insurers from “model shopping,” the practice of using a higher rate model for consumers and a separate model that lowers reinsurance costs for insurers. Under California regulations, insurers will be required to use a single model.
“Californians deserve a reliable insurance marketplace that doesn’t pull away from communities most vulnerable to wildfires and climate change,” Lara said in a statement. “This is a historic moment for California. My sustainable insurance strategy is focused on addressing the challenges we face today and building a resilient insurance market for the future. With input from thousands of residents across California , this reform balances consumer protection with the need to strengthen our market against climate risks.”
The rule comes as a flood of insurers has withdrawn from California, which has seen intensifying wildfires and drought conditions in recent years, as well as Florida, which has been battered by coastal hurricanes while also facing unique vulnerabilities in the form of rates of fraud and intense litigation.
In 2023, Farmers announced a moratorium on new policies in the Sunshine State, the 15th insurer to do so in an 18-month period, and State Farm, California’s largest homeowner’s insurer, did the same in the Golden State .
