California Bill Would Require Insurers to Consider Fire Mitigation When Setting Coverage, Rates

The American Property Casualty Insurance Association is urging California lawmakers to slow down on legislation that would require insurers to factor state and private fire mitigation efforts into decisions on coverage and rates.

Source: AM Best | Published on April 19, 2024

CA wildfire risks

The American Property Casualty Insurance Association is urging California lawmakers to slow down on legislation that would require insurers to factor state and private fire mitigation efforts into decisions on coverage and rates.

The bill, S.B. 1060, would require insurers to account for fire mitigation efforts including hazardous fuel reduction, home hardening, defensible space and fire prevention activities, according to the measure’s text. It would also authorize the Department of Insurance to examine models used for underwriting purposes to ensure compliance with a risk model requirement and issue orders to ensure compliance.

Lawmakers in the state’s Senate Insurance Committee are scheduled to take up the bill on April 24, according to the Legislature’s website. It’s sponsored by Sen. Josh Becker, a Democrat of Menlo Park.

“The California Department of Insurance already requires insurers that use risk models to take into consideration specific mitigations and provide consumers discounts,” said Mark Sektnan, APCIA’s vice president for state government relations. “The department is also in the process of developing regulations to authorize new types of catastrophe models that factor in the risk of wildfires and mitigation efforts taken by individuals and communities.  We believe the department should be allowed time to adopt these regulations.”

Carriers support wildfire mitigation efforts like home and community hardening projects to protect both public safety and property, Sektnan said in an emailed statement.

Insurers will be allowed to base projected wildfire, terrorism and flood losses on catastrophe models under proposed regulatory changes in California, a move Insurance Commissioner Ricardo Lara is calling another step in efforts to safeguard the integrity of the state’s insurance market.

The market is “essentially at a crossroad” with residents finding fewer options on climate-related threats from wildfires to atmospheric rivers and floods, he said.

Seven of the state’s 12 largest property/casualty insurance groups have instituted some kind of limit on underwriting, his department said, sharply increasing enrollment at the state’s insurer of last resort.

The five largest homeowners multiperil writers in California in 2022, based on direct premiums written, were: State Farm Group, with a 20.58% market share; Farmers Insurance Group, 14.46%; CSAA Insurance Group, 6.66%; Liberty Mutual Insurance Cos., 6.43%; and Allstate Insurance Group, 6.36%; according to BestLink.