California Insurance Commissioner Ricardo Lara recently announced a package of executive actions aimed at making property insurance more available throughout the state.
Considered the largest insurance reform since state voters approved Proposition 103 to protect consumers from arbitrary insurance rates and practices nearly 35 years ago, the Sustainable Insurance Strategy is a comprehensive approach to modernize California’s insurance market.
The overhaul comes after several of California's largest insurance companies announced in recent months that they would no longer be writing new homeowners policies in the state due to increased risk of natural disasters and rising construction costs. The plan addresses these problems fueled by climate change, including global inflation and increased costs for rebuilding, that have led to California's insurance crisis.
“We are at a major crossroads on insurance after multiple years of wildfires and storms intensified by the threat of climate change. I am taking immediate action to implement lasting changes that will make Californians safer through a stronger, sustainable insurance market,” Lara announced on Sept. 21. “The current system is not working for all Californians, and we must change course. I will continue to partner with all those who want to work toward real solutions.”
In support of Lara’s actions, California Gov. Gavin Newsom issued an executive order urging prompt regulatory action.
“It is critical that California’s insurance market works to protect homes and businesses in every corner of our state,” Newsom said. “A balanced approach that will help maintain fair prices and protections for Californians is essential.”
Key regulatory elements of the plan include:
● Executive action by Lara to transition homeowners and businesses from the state-mandated FAIR (Fair Access to Insurance Requirements) Plan – which offers basic fire insurance coverage to high-risk properties unable to find insurance in the traditional marketplace – back into the normal insurance market. The FAIR Plan can be expensive and only covers certain losses by fire and smoke. It is considered the insurance of last resort. Under the plan, insurance companies would commit to cover all parts of California by writing no less than 85% of their statewide market share in high wildfire risk communities. If a company writes 20 out of 100 homes statewide, for example, it must write 17 out of 100 homes in a distressed area.
● Giving FAIR Plan policyholders who undertake wildfire mitigation efforts as part of the state’s Safer from Wildfires framework first priority to transition to the normal market.
● Expediting the department’s introduction of new rules for the review of climate catastrophe models that recognize the benefits of wildfire safety and mitigation actions at state and local levels.
● Directing the FAIR Plan to further expand commercial coverage to $20 million per building to close insurance gaps for homeowners associations and condominium developments.
● Holding public meetings to explore incorporating California-only reinsurance costs into rate filings.
● Improving rate filing procedures and timelines by hiring additional department staff to review rate applications from insurance companies.
● Increasing data reporting by the FAIR Plan to the department, legislature and governor to monitor progress toward reducing its policyholders.
● Ordering changes to the FAIR Plan to prevent it from going bankrupt in the case of an extraordinary catastrophic event. This includes building its reserves and financial safeguards.
“California Realtors thank and support Commissioner Lara for taking necessary actions to strengthen and stabilize the state’s insurance market,” Jennifer Branchini, president of the California Association of Realtors, said. “We look forward to working with the commissioner and stakeholders to ensure that Californians have access to critical and reliable property insurance to protect their most valuable asset ― their home.”
Jim Hamilton, president of the Silicon Valley Association of Realtors, also welcomed actions taken by the commissioner.
“Our clients who want to purchase property in the hillside areas are particularly having a tough time getting insurance. This stalls and, in some cases, breaks a deal for homebuyers. Insurance is a basic need of every property owner.”
Silicon Valley Association of Realtors (SILVAR) is a professional trade organization representing 5,000 Realtors and affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term Realtor is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of Realtors and who subscribes to its strict Code of Ethics.
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