PSA: California Offers Fire Catastrophe Modeling After Insurers Exit
Introduction
On December 13, 2024, California Insurance Commissioner Ricardo Lara announced new regulations allowing home insurers to use catastrophe models in rate applications, provided they expand coverage in wildfire-prone areas that have faced reduced underwriting.
Insurers began backing out of high-risk areas prior to the ongoing wildfires in Los Angeles, but the urgency of the issue has intensified as these fires underscore the growing risks posed by climate-related disasters, high rebuilding costs, and rate-setting limitations under 1988's Proposition 103.
The Map
Over the summer, the Department of Insurance released the attached map reflecting areas where the state’s reinsurance option of last resort, the FAIR Plan, has become highly concentrated—mirroring areas of high and increasing wildfire risk. Insuring homes in many parts of the state is increasingly difficult and risky.
The Solution
After legislative efforts to reform rate-setting stalled, regulators introduced a solution allowing a “catastrophe factor” in rate applications.
In exchange for using catastrophe models, insurers must increase policies in “distressed areas,” including high wildfire-risk zones, to at least 85% of their total state market share within two years (Cal. Code Regs., tit. 10, § 2644.4.8). Those already meeting exposure requirements must maintain coverage for three years. Insurers failing to meet these targets must file new rate applications without catastrophe models.
To offset potential price hikes, discounts will apply for homeowners in high-risk areas who have implemented significant fire-hardening measures.
The Department of Insurance began accepting petitions on January 2, 2025.
Lost Your Home in the LA Wildfires Without Insurance?
If your home was affected by the fires in los angeles and you don’t have coverage:
FAIR Plan: Check if you had coverage through California’s last-resort insurance option.
Disaster Relief: Apply for aid from FEMA or Cal OES for uninsured losses.
Rebuilding Help: Look into grants or loans for rebuilding from FEMA or the SBA.
Legal Options: If your insurance was canceled or denied, the California Department of Insurance may assist.
California’s new insurance regulations aim to expand coverage in high-risk areas, but immediate resources are available to help with recovery.
Conclusion
As wildfires continue to devastate Los Angeles, leaving many without homes, California’s new insurance regulations take on even greater urgency.
By allowing catastrophe modeling and requiring expanded coverage in high-risk areas, the state aims to ensure that homeowners in wildfire-prone regions have access to insurance when they need it most.
