We keep hearing about how difficult it is for our clients to get property insurance these days, both for homes and businesses in Northern California’s wildfire-prone areas. Which, of course, is most of Northern California. Those who have not yet been non-renewed are dreading a potential notice on their next renewal cycle, and those who have been non-renewed or are purchasing new property are increasingly left with the FAIR Plan as the only available option.
There is hope that things will improve. On September 21, 2023, Governor Newsom signed an Executive Order urging Commissioner Lara to take action to address the crisis in the property insurance market.
Simultaneously, the Department of Insurance (“DOI”) announced proposed regulatory changes intended to curb the exodus of insurance companies from the market and provide additional options for those having difficulty finding insurance.
According to Commissioner Lara, the deal negotiated with insurers includes changes to the criteria that insurance companies can use to justify rate increases. Previously prohibited criteria include future-looking catastrophe modeling and the cost of reinsurance (which is also increasing). Proposed rate adjustments must be submitted to the DOI for approval, including for review of the forecasting modeling used to support any upward adjustments. Workshops with stakeholders and experts are underway to discuss what that modeling will look like and how it will be implemented.
As insurance companies can more accurately adjust rates to account for climate change and future-looking models, they will hopefully be less wary to write California policies. While this does mean that more rate hikes are likely in store across California, it will hopefully strengthen competition, especially in areas that increasingly had none. This, in turn, will take pressure off the FAIR Plan, which was another priority mandated by Governor Newsom’s September Executive Order.
In exchange for these concessions on rate computation, by December 2024 insurers who wish to take advantage of the new rating provisions must write policies in at-risk areas at 85% of the levels in which they provide coverage for California properties overall. The fire-distressed areas will be determined by the DOI, not the insurers. This means that insurers will no longer be allowed to selectively pick certain low-risk regions to write policies in while declining to write policies in at-risk areas. Insurers will have to take on nearly as many higher-risk insureds as lower-risk ones if they want to do business in California at all.
In the meantime, the changes will hopefully provide some relief to the commercial market. The DOI will direct “the FAIR Plan to further expand commercial coverage to $20 million per building to close insurance gaps for homeowners associations and condominium developments to help meet the state’s housing goals and to provide required coverage to other large businesses in the state.”
In addition, Commissioner Lara recently issued a moratorium on residential non-renewals in areas surrounding wildfires for at least 12 months following an officially declared state of emergency.
The intent of the DOI is to get the new regulations in place within a year to prevent further exodus and allow insurers like Allstate and State Farm—who exited the market this year—to return to writing California policies. While this may not be soon enough to help those non-renewed recently yet be non-renewed in the coming months, it should mean that many property owners relegated to the FAIR plan will have options to get back into the private insurance market in the near future.
 See “Governor Newsom Signs Executive Order to Strengthen Property Insurance Market,” Press Release (Sept. 21, 2023), available at: https://www.gov.ca.gov/2023/09/21/governor-newsom-signs-executive-order-to-strengthen-property-insurance-market/. See also Executive Order N-13-2023 (Sept. 21, 2023), available at: https://www.gov.ca.gov/wp-content/uploads/2023/09/9.21.23-Homeowners-Insurance-EO.pdf.
 “Commissioner Lara announces Sustainable Insurance Strategy to improve state’s market conditions for consumers,” Press Release (Sept. 21, 2023), available at: https://www.insurance.ca.gov/0400-news/0100-press-releases/2023/release051-2023.cfm.
 “Commissioner Lara statement on the success of the second catastrophe modeling and insurance workshop,” Press Release (Sept. 29, 2023), available at: https://www.insurance.ca.gov/0400-news/0100-press-releases/2023/statement054-2023.cfm
 See DOI Bulletin 2023-6 (Sept. 14, 2023), available at: https://www.insurance.ca.gov/0250-insurers/0300-insurers/0200-bulletins/bulletin-notices-commiss-opinion/upload/Bulletin-2023-6-Moratorium-Smith-River-and-Happy-Camp-Fires-Declaration-14-Sept-2023.pdf. Currently, the moratorium applies to Smith River Complex Fire and the Happy Camp Complex Fire. To see if your zip-code qualifies, you can search here: https://interactive.web.insurance.ca.gov/apex_extprd/f?p=450:50:13896446214771::NO:RP:P50_ACTION:P50_ZIP.