California insurance commissioner Ricardo Lara is looking to pass new regulation that would allow home insurers to raise premiums – with the idea being that the changes could also improve insurance availability to policyholders in wildfire-prone areas.
The wildfires that have swept California in recent years have led to considerable insured damage in the region. Subsequently, insurers began dropping policies in at-risk areas, citing the need to limit their financial risks. The limitation on rate increases has also hamstrung insurers’ efforts in the state; an insurance law called Proposition 103 not only considerably cut down insurance rates when it was first approved in 1988, but also subjected insurance companies to public inspection should their annual overall rate increases go over 7%.
“The reality is climate change is going to continue to disrupt communities through extreme heat and weather and affect our insurance markets,” said Lara. “Using my authority as a regulator to look at these key areas is really going to be critical.”
The state insurance commissioner’s office is now pushing for new rules allowing insurers to consider rate increases that are more reflective of their risks – rate increases that could go higher than 7%. In exchange, the commissioner would require insurers to provide more information to homeowners on how they can reduce their wildfire risk.
“Time and time again we heard from consumers, ‘How do I appeal my score? How do I know what I need to do to lower that score?’ And right now, there’s nothing,” the commissioner said.
By improving insurer-customer transparency and allowing homeowners to address their wildfire risks, insurers can better limit their exposure and be more encouraged to continue doing business in California.
“We’re incentivizing the consumer and incentivizing the local community to bring down the risk and keeping the insurance market vibrant where they’re competing for people’s businesses,” said Lara.
The Los Angeles Times reported that the state Department of Insurance will be hosting an investigatory hearing on October 19, where homeowners, industry experts, and insurance providers can give their opinions on Lara’s planned regulatory changes.