State Farm & Allstate won’t write new home policies in California

[Maphistos_Sidekick]

Commissioner Lara issues landmark regulation to expand insurance access for...

What it means: Insurance companies must increase coverage in wildfire-prone regions, ensuring they write policies for at least 85% of their statewide market share, with annual increases until the threshold is met.

More coverage for Californians in wildfire-distressed areas: All homeowners insurance companies must increase the writing of comprehensive policies in wildfire distressed areas equivalent to no less than 85% of their statewide market share, whereas there is no current legal requirement today for insurers to provide any coverage in high-risk areas. Companies will have to continue to increase by 5% every two years until they meet this threshold.

Cost caps: The regulation treats reinsurance like other insurance company expenses allowed under Prop. 103 today — such as claims handling or agent commissions — by establishing an industry-wide standard cost of reinsurance and capping the amount of reinsurance costs that can be charged to consumers. Companies spending more than the industry standard cannot pass these costs onto their policyholders.

Greater efficiency: Establishing a standard cost based on an index of what insurance companies spend encourages them to be efficient and compete for the best price for reinsurance, so consumers get the best value.

California-only costs: The regulation limits costs to California-only, so consumers do not pay for the cost of Gulf Coast hurricanes or Midwest windstorms.

Reliable rates: The regulation goes hand-in-hand with forward-looking wildfire catastrophe models that can better predict future rates. Under the current system of historical data, insurance consumers are paying balloon premiums and rate spikes after major wildfires, without increased availability.

Prevents “model-shopping”: “Model shopping” describes when insurance companies choose one model that produces higher rates for consumers, and another that lowers their reinsurance costs. To prevent model shopping, the regulation requires insurance companies utilize the same model for both. This promotes more consistent approaches to assessing risks, and balances the scales for consumers.

Largest insurance reform in 30 years: The new regulation is the final major element of the largest insurance reform in 30 years for California. The Department held multiple workshops and hearings in 2024, including a meeting on December 5 which was attended by more than 500 people and received 70 verbal and written comments which helped shape this regulation. Commissioner Lara has met with tens of thousands of Californians in all 58 counties across the state since taking office as well as testifying at four legislative briefings about his Sustainable Insurance Strategy over the past year.

I’m glad that I don’t do personal lines in the US anymore.

[Vorian_Atreides]

I give about 3 months for insurers to announce that they’ll start exiting the Homeowner personal lines in that state.

That “California-only costs” line is a backwards way of saying the companies can spread their California costs across Gulf states instead (not to mention the fly-over states ).

This also goes contrary to the “Cost caps” statement where they’re looking at using “industry-wide” values–which will be lower than any California-only costs.

I also wonder just how many of those “500 people” were from major insurance companies.

So everything here is just about the same as Florida about 10-15 years ago; but instead of hurricane risks, it’s the wild-fire risks.

[ArthurItas]

@Maphistos_Sidekick

establishing an industry-wide standard cost of reinsurance and capping the amount of reinsurance costs that can be charged to consumers.

Sounds like this provision may produce undesirable side effects.

[1695814]

@Vorian_Atreides

That “California-only costs” line is a backwards way of saying the companies can spread their California costs across Gulf states instead (not to mention the fly-over states ).

That’s how I read it as well…and was wondering if it was as [whatever] as I thought.

[Klaymen]

Why do they think that adding more regulations will expand insurance access to Californians? They evidently assume that any insurance will jump through hoops and crawl on broken glass to operate in the state.

If you want to write insurance in our state, you have to take on a quota of wildfire-distressed area business. That’s going to discourage business.

We’ll dictate what we think a reasonable industry-wide cost of reinsurance is and use that to force greater “efficiency” from the company.

With all of this talk about no “model-shopping” there will have to be even more scrutiny than before once wildfire models and their impact on consumer pricing and reinsurance costs go under the microscope.

I can only hope this backfires in a colossal way.

[Maphistos_Sidekick]

Of course, if they’re looking for a “California-only” reinsurance cost…does that mean we can’t recognize the diversification benefit of having a well-diversified property portfolio?

[Loner]

I don’t even understand that 85% thing.

[twig93]

I assume it means that if you have 20% of the market share across all of California then you must have no less than 17% of the market share in wildfire areas.

I’m not sure if you include or exclude the wildfire areas when you calc the 20%. My initial read was include.

[ArthurItas]

I also wondered if the market share was calculated based on policy count or premium volume.

[twig93]

I was going to say that the speaker doesn’t know the difference, then I thought maybe an insurance commissioner would, then I realized it’s an elected position help by a politician so now I’m back to “probably does not know the difference”.

[twig93]

Oh, I looked this guy up. Career politician. I’m going to say he has no idea the difference.

[Loner]

Annnd what happens if insurer A comes in and writes all the wildfire exposure because they think they can? How does insurer B manage to snag that market share? Make the commissioner force them to cede the business?

[The_Polymath]

The whole thing sounds like a train wreck waiting to happen.

[twig93]

See, it’s kind of a little bit like the Insurance Commissioner hasn’t completely thought this through…

[NormalDan]

When I was in PL Lara was infamous enough that we referred to him by name, rather than the commissioner of such and such DOI

[DeepPurple]

@Loner

I don’t even understand that 85% thing.

I see it as a provision that basically is steamrolling insurance companies into making California non-wildfire prone risks subsidize the risks in wildfire prone areas.

[Vorian_Atreides]

Finally got some time to read the entire article linked in Maphistos’ post.

@By Lara

With input from thousands of residents throughout California, this reform balances protecting consumers with the need to strengthen our market against climate risks.

Quite clear to me that insurance companies were not consulted on the measures.

@By article in general

Commissioner Lara announced on December 13 that he had finalized a wildfire catastrophe modeling regulation with a requirement for insurers to increase their policy offerings in underserved areas of the state as a condition of incorporating catastrophe modeling into ratemaking.

Based on this, I can see some insurers will opt to NOT use wildfire models for their ratemaking and continue to exclude other areas where wild-fire risks is apparently on the rise.

[NormalDan]

At a prior company we did something similar. If you wanted to rate differently for different wildfire areas you had to comply with all of this onerous regulation. We were writing mid to large Property and the regulation made little sense for us, but no matter.

In the end we were able to just not write any zones with non trivial wildfire risk as an underwriting guideline rather than a rating factor and thereby avoid the regulation, so less supply of insurance.

[The_Polymath]

@DeepPurple

I see it as a provision that basically is steamrolling insurance companies into making California non-wildfire prone risks subsidize the risks in wildfire prone areas.

Agreed. They are forcing cross-subsidy (higher premiums for homeowners in safer areas) but also limiting the reinsurance that can be charged for those aggregated risks.

Bunch of lunatics in CA tbh. This is going to blow up in their face.

[Klaymen]

What I can’t understand is how this nonsense always seems to get good press. The most significant insurance legislation in decades… Solving the wildfire problem… The insurance companies will continue to be portrayed as money-hungry corporations nonrenewing homes with their immense force of evil roof-spying drones.