SACRAMENTO, Calif. — Insurance Commissioner Ricardo Lara invited public input on a proposal to increase the writing of insurance in parts of the state most affected by wildfires and other extreme weather catastrophes. The public noticeoutlines the Department’s approach to a new regulation incorporating the net costs of reinsurance in ratemaking and invites feedback at a public meeting on Thursday, December 5, at 10AM.
The proposed regulation is part of Commissioner Lara’s Sustainable Insurance Strategy aimed at stabilizing California’s property insurance market and expanding coverage options for homeowners, businesses, and other consumers. He previously announced on November 14 that the Department had submitted a related regulation on catastrophe modelingfor final approval and remains on track for completing its regulatory reforms by the end of the year. These two regulatory efforts work together to increase the availability of homeowners and commercial insurance policies in wildfire distressed areas.
Reinsurance is a financial product that has existed since the 14th century, when merchants and traders sought ways to mitigate the risks of ocean voyages and often found they could cover only part of their risks through a single insurer. Today, reinsurance is a cost of doing business in states with increasing climate risks across the nation, enabling insurance companies to write more policies in areas of higher risk. In 2023, the first systematic review of climate risk strategies by Ceres and the California Department of Insurance revealed that reinsurance is the primary strategy most insurance companies use to continue to write and expand coverage in higher risk parts of California and across the country.
According to the Department’s public notice, “Because reinsurance costs can vary between companies, the Department proposes to create a standard Net Cost of Reinsurance that establishes a benchmark for all insurance companies. This is similar to how the Department reviews other allowable expenses in rate filings currently reflected in the efficiency standard. Companies that seek to utilize the NCOR would have to demonstrate an increased commitment of policies written in higher risk areas.”
The notice requests public input to inform the final drafting of regulatory text
Carriers need to be aboard and as in most cases with California politics, the regulatory environment is too cost-prohibitive or risk-prohibitive for carriers and can risk driving them to insolvency which they will not partake in. This is someone pretending to want to do something; this is exactly why carriers and people flee California. It’s almost like you are dealing with a kidnapper who is pretending to be nice to you, but is not going to let you off the hook without destroying you.