After the legislative session officially ended on August 31, conversations around insurance remained at the top of everyone’s minds due to the many wildfires that ravaged California during the summer and fall. Your PIFC staff has been working diligently to respond to the challenges insurers are facing because of the increasing number and severity of these events.
On October 19, the California Department of Insurance (CDI) hosted a Virtual Investigatory Hearing on Homeowners’ Insurance Availability and Affordability. The purpose of the hearing was to shine a light on non-renewals and to encourage insurers to write more policies in high-risk fire-prone areas. PIFC staff worked with industry leaders to testify at the hearing and crafted a response letter to questions from the CDI. Insurance industry leaders, wildfire mitigation experts, consumer advocates, Firewise Council members, and residents all spoke at the hearing. Our own PIFPAC member Bob Smith testified as an agent looking out for the best interests of his clients and a healthy insurance market.
Those who spoke on behalf of the insurance industry discussed ways in which the CDI could help insurers expand their footprint in high-risk areas. Catastrophe modeling (CAT) is an important factor in the way insurers rate their policies. Industry leaders stated that the current system used for CAT modeling is outdated, and urged that standards be updated to allow for CAT modeling in rate making. Other issues discussed included home hardening and mitigation standards, rate filing approval time, and the FAIR Plan. The CDI was very receptive to each of the speaker’s concerns and from the Investigatory Hearing, a follow up hearing on the benefits of Catastrophe modeling was announced.
Recently, the CDI had a follow up hearing to learn more about the usefulness of CAT modeling. At the December 10 Home Hardening Standards and Wildfire Catastrophe Modeling in Ratemaking Hearing, various experts in the field of CAT modeling spoke about the importance of using models to predict the severity and spread of future wildfires. Experts discussed the importance of moving away from the current 20-year loss modeling system, as it does not accurately reflect the risk that the last three years of wildfires has exposed. Experts believe that moving to predictive CAT models will increase availability through:
- Fostering competition
- Promoting price predictability and stability
- Encouraging effective risk reduction for existing homes and communities
There were notable experts from Milliman, the Institute for Business and Home Safety (IBHS), CoreLogic, Cal Fire, and American Risk Modeling (AIR). It remains to be seen whether the CDI will allow changes to the current rate making system, however the conversation was well received and signified a more conciliatory relationship between the insurance industry and the CDI moving forward.