APCIA commends California catastrophe modeling proposal
The proposal is part of California Insurance Commissioner Ricardo Lara’s goal to enact insurance reform during 2024.
California Insurance Commissioner Ricardo Lara has released a draft of his state’s proposed catastrophe modeling and ratemaking regulation. The proposal is intended to make insurance coverage more affordable and accessible in the Golden State while shoring up its struggling insurance market.
The initiative is part of Lara’s Sustainable Insurance Strategy, a stated goal to enact insurance reform in California, which has been disproportionately impacted by wildfires in particular, before the end of 2024.
“For more than 30 years, California regulations have allowed insurance companies to apply a catastrophe factor to insurance rates based on historical wildfire losses,” the Department said in its press release about the proposed catastrophe modeling regulation. “These outdated rules have contributed to rate spikes and balloon premiums following major wildfire disasters without fully accounting for the growing risk caused by climate change or risk mitigation measures taken by communities or regionally, as a result of local, state, and federal investments.”
Currently, the Department of Insurance allows the use of catastrophe models for earthquake losses and fire following earthquake, the Department said. The proposed regulation expands the allowable use of catastrophe models to include wildfire, terrorism, and flood lines for homeowners and commercial insurance lines. “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,” Lara said in the CDI press release. He added that his proposed regulation also would provide stronger state oversight of rate-making processes and help safeguard communities from future catastrophes.
The American Property Casualty Insurance Association indicated Lara’s proposal is a step in the right direction for both insurers and policyholders.
“We commend Commissioner Lara for prioritizing this important reform,” Mark Sektnan, APCIA vice president for state government relations, said in a statement responding to Lara’s latest regulatory steps. “As Californians grapple with record inflation and become increasingly vulnerable to climate-driven extreme weather, including catastrophic wildfires, this is a critically needed tool to help identify future risks more accurately and set rates that reflect our new reality. More accurate ratemaking will help restore balance to the insurance market and ensure all Californians have access to the coverage they need. We look forward to working with the Department of Insurance on implementing this forward-looking solution and other desperately needed reforms to fix the insurance crisis.”
The California Department of Insurance will hold a public workshop on April 23, 2024, to receive public and industry input before starting the process of submitting the regulation for approval by the state’s Office of Administrative Law.
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