“California Regulators Unveil Areas Insurers Must Cover to Address Homeowners’ Insurance Crisis”
California regulators have unveiled new regulations outlining which areas of the state insurers must cover in order to qualify for financial incentives aimed at addressing the homeowners’ insurance crisis. The draft regulations, released by the Department of Insurance, specify that in Los Angeles County, coverage must extend to ZIP Codes in the Santa Monica Mountains, the San Gabriel Mountains, and parts of the Santa Clarita Valley.
Last year, in response to insurers pulling back from wildfire-prone areas, Insurance Commissioner Ricardo Lara introduced the Sustainable Insurance Strategy, marking the most significant overhaul of industry regulations since the passage of Proposition 103 in 1988. These new regulations are slated to be implemented by the end of the year.
Commissioner Lara emphasized that the reform efforts are data-driven and informed by extensive discussions with Californians across the state. A key component of the strategy involves allowing insurers to factor in the cost of reinsurance in their premiums to protect against disasters, as well as utilizing computer models to assess future claims risks associated with wildfires exacerbated by drought and climate change.
Under an agreement with the industry, large insurers are required to provide coverage in wildfire risk areas equivalent to 85% of their statewide market share. Smaller insurers face a 5% increase in the number of policies they write in distressed areas, along with a 5% uptick in commercial policies. The regulations employ a hybrid approach to achieve these goals, considering the state’s diverse geography encompassing mountainous rural regions, coastal zones, and suburban neighborhoods.
The regulations delineate how insurers can meet the coverage targets, with one set applying the 85% threshold to entire counties with a significant proportion of properties in high-risk areas. Another set focuses on high and very high fire-risk ZIP Codes, as well as areas where coverage is deemed unaffordable based on income or premium cost metrics. Additionally, provisions are in place to address high fire-risk neighborhoods not covered by the aforementioned rules.
The Department of Insurance will monitor insurers’ compliance with the new regulations, with potential consequences for those failing to meet the requirements. Consumer advocates have raised concerns about the timeline for insurers to achieve coverage targets and ensure affordability, while industry representatives have expressed support for the initiative.
A state map and list of affected ZIP Codes have been issued, with a hearing scheduled for June 26 to gather input from stakeholders. Notable neighborhoods included in the coverage mandate are Malibu, Beverly Hills, Topanga, Bel-Air, and Catalina Island, among others. The ongoing efforts aim to enhance insurance availability and bolster the health of the insurance market in California.