California offers catastrophe plan to draw insurers back to the state. But at what cost?

A firefighter wetting a burned down home with a fire hose
A San Bruno firefighter puts out hotspots in a home destroyed by the 2020 Glass fire, which burned over 11,000 acres in Sonoma and Napa counties.

Good morning. It’s Friday, March 29. Here’s what you need to know to start your day.

California intends to attract insurers back with flexible policies

The homeowners insurance crisis in California worsened last week when State Farm General Insurance announced that it wouldn’t renew 72,000 property owner policies statewide. Those policies are set to be canceled by summertime.

It’s not just State Farm.

Other insurers, like Allstate and USAA, have rapidly ceased new business in the Golden State, blaming the intensifying risk of insuring homes in the state’s increasingly dry, fuel-rich, fire-prone forests. We could be hurtling toward an “uninsurable future.”


Weeks ago, the California Department of Insurance, or CDI, proposed a regulation allowing insurers to use catastrophe models — computerized processes that simulate potential catastrophic events — to consider the projected impacts of climate change when requesting rate increases.

California hopes this will help lure insurers back.

If approved, insurers could submit catastrophe models for wildfires, floods and terrorism to the CDI and use predictions from these models to justify rate increases.

The state had already struck a deal in September to allow insurers to pass on the costs of reinsurance policies — which they use to help cover their own losses after major catastrophes — to customers in exchange for insurers returning to high-risk fire zones in California’s hills and canyons. The changes are slated to go into effect by the end of 2024.

Under Proposition 103, the state’s law governing the insurance industry, companies had been forbidden from passing on reinsurance costs to customers and were required to set rates based only on historical fire data.

The CDI believes changing this policy will provide more stable costs than current regulations, which have led to sudden and steep increases for those at higher risk of wildfire.

But advocates say catastrophe modeling isn’t always fair


Consumer Watchdog, an advocacy group, opposes catastrophe modeling, labeling it a violation of Proposition 103, and argues that the policy seems designed to restrict public access to information about how models affect rates.

“Catastrophe models are notoriously contradictory and unreliable, which is why public review and transparency are key before insurance companies are allowed to use them to raise rates,” the group wrote in a statement.

The regulation proposal is part of Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy, a package of executive actions aimed at improving insurance choices and addressing the long-term sustainability of California’s insurance market.

Gov. Gavin Newsom issued an executive order in September commanding the insurance commissioner to “take prompt regulatory action to strengthen and stabilize California’s marketplace.”

“This issue isn’t just a yellow flag; it’s a waving red flag,” Newsom said at Climate Week NYC in September, speaking of the Legislature’s failure to address the slow-moving collapse of the property insurance market.

Insurers’ leaving the state has placed extra strain on many homeowners’ last-resort option


State Farm — the state’s longtime leading home insurer— had already announced last June that it would stop offering new property policies in the state due to the “rapidly growing catastrophe exposure and a challenging reinsurance market.”

USAA and Allstate also pulled back. Farmers capped the number of new policies written monthly. Travelers and Nationwide imposed new restrictions, making it harder for new customers to qualify for policies.

For the record:

9:20 a.m. March 29, 2024An earlier version of this article stated that Allstate stopped offering new property policies in California following State Farm’s June 2023 announcement. Allstate stopped offering new policies to California customers in November 2022.

“This could be the beginning of a market collapse that would leave millions stranded without affordable insurance as their homes burned to the ground,” Times reporter Sam Dean wrote last summer.

A scarcity of insurance choices has driven thousands to purchase limited insurance from the Fair Access to Insurance Requirement, or FAIR, Plan, with 350,000 Californians covered as of January 2024. The fund is a last resort insurance pool California requires insurance companies to contribute to based on their statewide market share.

However, a massive leap in enrollment from just under 273,000 two years ago has financially strained the state insurer. The president of the FAIR Plan Assn. warned lawmakers that the organization may be unable to financially survive a catastrophe.

Californians need insurance. Advocates say insurers can afford more.

Insurance remains the safest protection against personal calamities, whether climate-induced or otherwise, Times columnist Anita Chabria wrote last year. The state’s residents need insurers to remain in the market.


But climate change should not be a free pass for gouging consumers, Chabria said. Despite the cited disaster claims, she pointed out that insurance companies are still making money, albeit with worse profit margins than in the past.

During discussions last summer about the forward-looking models, Harvey Rosenfield, founder of Consumer Watchdog, stated: “This has nothing to do with climate change; it’s about the industry’s greed and its 35-year campaign — so far unsuccessful — to escape the requirements of Prop. 103.”

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Have a great day, from the Essential California team
Anthony De Leon, reporting fellow
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