Commissioner Lara Announces Sustainable Insurance Strategy to Improve State’s Market Conditions for Consumers

SACRAMENTO, Calif. — Insurance Commissioner Ricardo Lara announced a package of executive actions aimed at improving insurance choices and protecting Californians from increasing climate threats while addressing the long-term sustainability of the nation’s largest insurance market. The largest insurance reform since state voters’ passage of Proposition 103 nearly 35 years ago, California’s Sustainable Insurance Strategy is a comprehensive approach building on Commissioner Lara’s multi-year effort to modernize California’s insurance market after meeting with thousands of Californians since he took office in 2019.

California Governor Gavin Newsom yesterday issued an executive order urging prompt regulatory action that supports Commissioner Lara’s actions for communities affected by climate change.

The actions announced yesterday are aimed at addressing problems fueled by climate change and being experienced by states across the nation including global inflation and increased costs for rebuilding that have led to several insurance companies pausing coverage for writing new homeowners and commercial insurance policies, non-renewing existing consumers, and increasing rates to maintain their financial stability. Unlike public utilities, which are required by law to cover all consumers, insurance companies will not write insurance, especially in high-risk areas, unless they are able to ensure they have the capital and reserves to fully meet all insurance claims submitted by consumers, cover their expenses, and earn a fair return. Insurance company actions following multiple years of major wildfires and winter storms have pushed more people to the FAIR Plan, which is intended as California’s insurer of last resort but has become the only option in some areas of the state.

“We are at a major crossroads on insurance after multiple years of wildfires and storms intensified by the threat of climate change. I am taking immediate action to implement lasting changes that will make Californians safer through a stronger, sustainable insurance market,” said Commissioner Lara. “The current system is not working for all Californians, and we must change course. I will continue to partner with all those who want to work toward real solutions.”

“This is yet another example of how climate change is directly threatening our communities and livelihoods. It is critical that California’s insurance market works to protect homes and businesses in every corner of our state,” said Governor Newsom. “A balanced approach that will help maintain fair prices and protections for Californians is essential. I look forward to continuing to work with Commissioner Lara and others to strengthen our marketplace and protect Californians.”

Key regulatory elements of the plan include:

• Executive action by Commissioner Lara to transition homeowners and businesses from the FAIR Plan back into the normal insurance market with commitments from insurance companies to cover all parts of California by writing no less than 85% of their statewide market share in high wildfire risk communities. For example, if a company writes 20 out of 100 homes statewide, it must write 17 out of 100 homes in a distressed area;
• Giving FAIR Plan policyholders who comply with the new Safer from Wildfires regulation first priority for transition to the normal market, thus enhancing the state’s overall wildfire safety efforts;
• Expediting the Department’s introduction of new rules for the review of climate catastrophe models that recognize the benefits of wildfire safety and mitigation actions at the state, local, and parcel levels;
• Directing 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;
• Holding public meetings exploring incorporating California-only reinsurance costs into rate filings;
• Improving rate filing procedures and timelines by enforcing the requirement for insurance companies to submit a complete rate filing, hiring additional Department staff to review rate applications and inform regulatory changes, and enacting intervenor reform to increase transparency and public participation in the process;
• Increasing data reporting by the FAIR Plan to the Department, Legislature, and Governor to monitor progress toward reducing its policyholders; and,
• Ordering changes to the FAIR Plan to prevent it from going bankrupt in the case of an extraordinary catastrophic event, including building its reserves and financial safeguards.

California’s Sustainable Insurance Strategy builds on actions that Commissioner Lara has taken including enacting regulations under his authority and sponsoring legislation to improve insurance benefits:

• Enacting the Safer from Wildfire Regulation: Commissioner Lara has mandated insurance companies to recognize and reward wildfire safety and mitigation efforts made by homeowners and businesses. His new regulation requires insurance companies to submit new rates that recognize the benefit of safety measures such as upgraded roofs and windows, defensible space, and memberships in community-wide programs such as Firewise USA and the Fire Risk Reduction Community designation developed by the state’s Board of Forestry and Fire Protection. It further requires insurance companies to provide discounts to consumers that meet various elements of the Safer from Wildfires framework and to provide consumers with their property’s “wildfire risk score,” including a right for consumers to appeal that score.
• Modernizing the FAIR Plan: Commissioner Lara continues to reform the FAIR Plan by expanding its coverage options and ensuring wider availability for its policyholders, including expanding residential and commercial coverage limits for the first time in 25 years to keep pace with increased costs. His agreement with the FAIR Plan increased its commercial coverage limit to $20 million per location for businesses unable to find coverage in the normal insurance marketplace.
• Promoting Policyholder Security through Moratoriums on Non-renewals and Cancellations: Under a law written by then-Senator Lara, the Commissioner has protected more than 4 million people statewide since 2019 through mandatory one-year moratoriums on insurance companies cancelling or non-renewing residential insurance policies in certain areas within or adjacent to a fire perimeter after a declared state of emergency is issued by the Governor.
• Sponsoring New Insurance Protections: Commissioner Lara-sponsored bills signed into law by the Governor — despite opposition from insurance companies — will mean quicker payouts for some consumer claims, less red tape from insurance companies, and more help for people under evacuation orders.
• Supporting Multi-year Funding for Wildfire Safety: Commissioner Lara strongly supported the Governor and Legislature in increasing our state’s wildfire mitigation efforts, including $2.7 billion directed into wildfire resilience programs over the past three years. These efforts include funding fire prevention grants for local risk reduction projects, creating fire breaks that protect communities, expanding defensible space inspections, and increasing strategies like prescribed fire and fuels reduction projects.