CA Expands Insurance Options To Wildfire-Devastated Areas

CALIFORNIA — The Golden State's insurance regulators have announced expanded accommodations for those living in areas vulnerable to wildfires.

The news comes as California faces an insurance crisis following a slew of devastating wildfires that have destroyed or damaged tens of thousands of homes over the past several years.

According to Insurance Commissioner Ricardo Lara, the state is expanding coverage to areas that need it the most — a first-of-its-kind approach.

Insurers must now use a new "catastrophe" model to set rates in wildfire-devastated areas, according to new rules unveiled by Lara. The new regulations also hold companies accountable for fire-proofing homes when setting rates.

"For the first time in history, we are requiring insurance companies to expand where people need help the most," Lara said in a statement.

Over the past 30 years, insurers have used historical wildfire data to set rates statewide — a policy Lara called "outdated" for contributing to higher costs and fewer policies for residents.

"These outdated rules have contributed to rate spikes and balloon premiums following major wildfire disasters without fully accounting for the growing risk caused by climate change or risk mitigation measures taken by communities or regionally, as a result of local, state, and federal investments," according to a statement from Lara's office.

The new regulations are a direct response to major insurance companies like State Farm and Hartford General Financial exiting California due to wildfire risks, leaving homeowners without coverage.

The insurance exodus also placed a massive strain on the California FAIR Plan, which faced $311 billion in potential losses earlier this year. This year, the plan covered more than 370,000 homeowners, more than double the number five years ago, Bloomberg reported.

“We don’t have a lot of money sitting around,” said California FAIR Plan President Victoria Roach. “Our rates are not adequate. If we have a major event, we’re going to look to the voluntary market — which is already in a precarious situation — to cover our losses.”

Under Prop 103, passed by voters in 1988, insurers were allowed to choose where to write policies in the state. That is no longer the case. New regulations now require California’s largest insurers to cover at least 85% of homes in wildfire-prone areas.

Beginning Jan. 2, the state's largest insurers will be required to cover at least 85% of homes in wildfire-distressed areas.

Companies are now required to write policies for the most vulnerable and hazardous areas of California, as mapped out by Cal Fire.

“Catastrophe models are essential for modeling perils like flood and wildfire that are now worsening as the planet warms. I am especially pleased to see the Department of Insurance requiring that these models incorporate the best scientific information on risk reduction from a property to landscape scale,” Carolyn Kousky, Associate Vice President for Economics and Policy, said in a statement.

Local leaders have also praised the new regulations.

“We need to ask the insurers to include consideration of community and large-scale wildfire risk mitigation, because that's the right thing for communities to do to make their communities safer and their properties safer," Napa County Supervisor Anne Cottrell said.

And while homeowner groups, fire officials and more groups have sung Lara's praises, some watchdog groups have scrutinized the move, urging that it could result in large rate hikes for consumers.

“Full transparency is what keeps insurance rates honest but Commissioner Lara’s rule does away with that protection. The rule will let insurance companies raise rates based on secret algorithms but not expand coverage as promised,” said Carmen Balber, executive director of Consumer Watchdog.

The new regulations are being discussed on the heels of another devastating wildfire, which scorched 4,037 acres in Malibu this month. Officials reported 20 structures were destroyed and another 28 were damaged in the fire, which broke out on Dec. 9, according to Cal Fire.

While the fire was 63 percent contained on Tuesday, firefighters were bracing for the return of dry Santa Ana winds, which could raise fire danger yet again.

READ MORE: Franklin Fire Containment Reaches 63% As Firefighters Brace For Santa Ana Winds' Return