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California pushes insurers to cover more homes in these areas. Is your ZIP included?

A home in the community of Chicago Park near Colfax is engulfed in flames on Mount Olive Road during the River Fire on Wednesday, Aug. 4, 2021.
Andrew Nixon
A home in the community of Chicago Park near Colfax is engulfed in flames on Mount Olive Road during the River Fire on Wednesday, Aug. 4, 2021.

California Insurance Commissioner Ricardo Lara unveiled today an effort to force insurers to resume writing policies in high-fire-risk areas — part of an overall plan to address the state’s insurance crisis.

The Insurance Department proposed three different pathways for insurers to meet minimum requirements for writing policies in areas deemed “high risk” or “very high risk” by Cal Fire. Regulators said this hybrid approach takes into account the state’s complex geography as well as the different levels of risk big and small insurers can afford to assume. Lara said this should help homeowners who have lost coverage or been forced to turn to the last-resort FAIR Plan.

Insurance companies will have these options:

  • Write 85% of their statewide market share in high-risk areas. The department explains it this way: “If a company writes 20 out of 100 homes statewide, it must write 17 out of 100 homes in a distressed area.”
  • Achieve one-time 5% growth in the number of policies they write in high-risk areas.

The department also released a map that shows where wildfire risk and FAIR Plan policies are concentrated, as well as a list of counties and ZIP codes of high-risk areas, that correspond with the requirements. Regulators will update these areas at least once a year.

The proposed options aren’t technically requirements, because the state cannot legally require insurers to write either homeowner or commercial property policies. But the state expects insurers to comply because failure to do so would mean insurers would not be able to take advantage of something they’ve lobbied for long and hard: catastrophe modeling.

Lara unveiled the first part of his plan to allow for catastrophe modeling in March; this is the second part of that plan. Catastrophe modeling takes into account historical data and combines that with projected risk and losses — something insurers have been able to do in every other U.S. state but California. Insurers will be able to use it here once Lara’s overall plan takes effect as promised at the end of the year.

Today’s announcement made clear what the companies will have to do in return.

“Insurance companies need to commit to writing more policies and my department will need to verify those commitments and hold them accountable,” Lara told reporters this morning. When they submit rate reviews, insurers will state which of the pathways they choose. If they don’t fulfill the requirements of that pathway, “my department will use its law enforcement authority and reconsider rate reviews,” the commissioner said.

Lara’s staff said they established the requirements for minimum coverage in distressed areas after talking with different stakeholders, including insurance companies that said the requirements were achievable.

Insurance industry representatives and Consumer Watchdog said they were still looking over the details of the Insurance Department’s draft regulations.

Levi Sumagaysay covers the economy for CalMatters. Previously, she was a senior reporter who covered worker issues, the gig economy, inequality and corporate accountability for MarketWatch. She also was a longtime reporter and tech and business editor at the Mercury News. She is based in the Bay Area.

CalMatters is a nonpartisan, nonprofit journalism venture committed to explaining how California’s state Capitol works and why it matters.