Commissioner unveils plan for home insurers to base California rate hikes on catastrophe prediction models

A grass fire burns adjacent to Crystyl Ranch in Concord, Calif., on Friday, June 29, 2018. On Thursday, March 14, 2024, California Insurance Commissioner Ricardo Lara unveiled a proposal for letting those insurers use computer models of possible future catastrophes to justify rate increases. The plan is part of a yearlong effort to overhaul regulations and ease the insurance market crisis in the wildfire-stricken state.

“We can no longer look solely to the past as a guide to the future,” Lara said in a statement Thursday. “My strategy will help modernize our marketplace, restoring options for consumers while safeguarding the independent, transparent review of rate filings by Department of Insurance experts, which is a bedrock principle of California law.”

Consumer Watchdog founder Harvey Rosenfield, Prop 103’s author, has noted that catastrophe modeling hasn’t helped hurricane-wracked Florida, which is facing a home insurance crisis of its own while homeowners there already pay some of the highest premiums in the country. He’s not necessarily opposed to them but said there must be transparency around their use. Consumer Watchdog says such models have helped push Florida rates two to three times higher than in California’s.

Lara has promised that in exchange for granting insurers’ ratemaking wishes, they must agree to provide 85% of their statewide home insurance market share in wildfire-risk areas. Rosenfield and independent industry analysts have been skeptical that such a commitment is feasible or enforceable. Commercial insurance policies to cover terrorism are offered separately, while standard homeowners policies cover fire, smoke and explosion, which could include acts of terrorism. Terrorism is too infrequent in the U.S. to base risk on historical losses, but the department said catastrophe modeling could provide a tool to better assess that risk.

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