Forcing all the insureds not in the fire-prone areas to subsidize those who choose to live in the scenic towns and semi-wilderness where the power lines meet the forests.
From the Washington Post, December 31:
A new state regulation says insurers must increase their coverage of high-risk regions, while allowing them to pass certain costs on to consumers.
Insurance companies that pulled back from fire-prone areas of California in recent years will have to start covering those regions again if they want to stay in the state — but they can pass more costs on to customers.
A regulation announced this week by the California Department of Insurance requires insurers to increase the writing of comprehensive policies in disaster-prone areas by 5 percent every two years up to a certain threshold. Currently, there is no requirement that insurers operate in high-risk areas at all, and some of the largest home insurers have cut their natural disaster coverage or hiked rates as climate risk grows.
But in an effort to keep those firms from leaving California altogether, regulators included a concession that the industry has sought for years: the ability to include reinsurance costs in the rates that homeowners pay.
“Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change,” California Insurance Commissioner Ricardo Lara said in a statement.
Lara described the rule, which was announced Monday, as part of an ambitious plan for insurance reform. Lara’s broader plan allows carriers to charge residents for the rising costs of climate change, incorporating forward-looking projections rather than just historical data, in exchange for an expansion of coverage. The rule takes effect in 30 days pending an administrative review.
Under the new rules, insurers would eventually write comprehensive home insurance policies in high-risk areas up to a level that is at least 85 percent of their statewide market share. For example, if a company holds 10 percent of policies statewide, its market share in a high-risk area must reach at least 8.5 percent, said Michael Soller, a California deputy insurance commissioner.
“We’re not rewriting their business plan; we are saying these are the areas where people are hurting and where you need to be writing policies,” Soller said.
The changes come after several leading insurers stopped writing new policies in the state, citing financial risk from wildfires. Allstate, for example, pulled back coverage and was later approved for a 34 percent rate hike.
The regulation effectively means homeowners will bear the cost of the reinsurance policies that insurers use to cover their own losses. Under the new rule, insurance companies can treat reinsurance like any other company expense as long as they abide by an industry standard for how much it should cost.
California has been the only state that doesn’t allow those costs to be considered when insurance companies set rates.
While insurance industry representatives praised the reinsurance changes, a consumer organization criticized the new regulation as a giveaway to insurers. Consumer Watchdog, a California advocacy group, said it is worried that the changes will drive up home insurance rates by as much as 40 or 50 percent without offering a “substantive” expansion in wildfire coverage....
....MUCH MORE
Wildfire: "Living in the Danger Zone"
"The Wildfire West: Where Housing Sprawl and Wildfire-Prone Areas Collide"
and the intro to and outro from "State Farm Halts Home-Insurance Sales in California"
