What you need to know about the new proposed insurance company restrictions in California

SACRAMENTO, Calif. (AP) — Months after the nation’s most populous state’s home insurance market was shaken by major companies suspending or limiting their coverage, the state’s top regulator announced Thursday that he would write new rules to encourage insurers to continue operating there.

Since last year, seven of the top 12 insurance providers in California by market share have either stopped or limited the sale of new plans there.

Some state legislators attempted to draft a bill that would deal with the problem. But before the Legislature broke for the year last week, they were unable to come to an agreement.

Ricardo Lara, California’s insurance commissioner, put forth the following proposal, along with an explanation of how it would impact the state’s insurance market:


Contrary to most states, California strictly controls the property insurance industry.

Californians supported Proposition 103 in 1988. It stated that before raising rates, insurance companies needed approval from the state Department of Insurance.

Insurance companies cannot take into account present or potential threats to a property when determining their prices. They are limited to using old data.

Reinsurance is the practice of insurance firms purchasing their own insurance. When determining rates for California homeowners, businesses are not permitted to take their reinsurance costs into account.

California’s wildfires have grown more intense due to climate change. The California Department of Forestry and Fire Protection reports that 14 of the state’s 20 most devastating fires have occurred since 2015.

According to insurance firms, it is challenging to accurately estimate the risk for properties because climate change cannot be taken into account in their prices. Furthermore, they gripe about having to pay more for reinsurance, which they are unable to recover from ratepayers.

In response, a lot of insurers have stopped or limited new business in the state. Additionally, they decided not to renew insurance for some homeowners.

The California Fair Access to Insurance Requirements (FAIR) Plan is where homeowners who require insurance can acquire policies when they are unable to do so from private insurance providers. Policies sold to customers provide the majority of the plan’s funding. Only when the fund is insolvent or in risk of becoming so, should insurers contribute to it.

In recent years, the number of persons on the FAIR Plan has nearly doubled. Insurance providers are concerned about this development. Insurance firms would be responsible for paying the expenses if the fund became insolvent.


Ricardo Lara, the California insurance commissioner, promised to draft new regulations allowing insurers to factor climate change into their pricing. He has also promised to take into account regulations that would let them to take some of their reinsurance expenses into account.

There would be no change to the regulations requiring insurance companies to obtain state approval before raising their prices.

According to Lara, the state would only permit businesses to employ these new regulations if they create more protections for residents of wildfire-prone areas. According to him, this requires businesses to write policies covering at least 85% of their statewide market share in certain regions. Accordingly, if a company covers 20 out of every 100 residences, it is required to also write 17 policies for homeowners in wildfire-prone areas.


Some consumer advocacy organizations, such as Consumer Watchdog in California, are concerned that enabling insurance firms to take climate change into account when setting premiums may result in much higher costs for homeowners.

But Lara asserted that homeowners might also gain from the new regulations. He added insurance companies might also take into account modifications homeowners have made to their homes to increase their resistance to flames. The government has invested billions of dollars on better managing forests and lowering the risk of wildfires, which businesses may also take into account.

If the regulations are followed and more insurers continue to operate in California, there may be greater competition for clients, which might keep rate increases in check.


State regulators would need some time to draft the regulations. There is plenty of time built into the process for insurance companies and consumer advocacy groups to weigh in. Lara stated that he has given the department until December 2024 to finalize the new guidelines.

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