New California regulation requires insurance companies to offer coverage in high-risk areas

California insurers will be required to sell coverage in wildfire-prone regions that have seen an insurer exodus in recent years, state Insurance Commissioner Ricardo Lara announced Monday.

Under the new regulations, companies must make their services available in high-risk areas to do business in the state, the first such requirement in California history. Insurers must write policies covering at least 85 percent of their statewide market share in those vulnerable regions, increasing such coverage by 5 percent increments every two years until they reach that threshold, Lara said.

The commissioner’s office said the requirement will be limited to California, so in-state consumers will not be on the hook for the insurance costs of other high-risk areas, like the Gulf Coast.

Lara said the rule aims to keep insurers from “model-shopping,” the practice of using a higher-rate model for consumers and a separate model that lowers reinsurance costs for the insurers. Under the California regulations, insurers will be required to use a single model.

“Californians deserve a reliable insurance market that doesn’t retreat from communities most vulnerable to wildfires and climate change,” Lara said in a statement. “This is a historic moment for California. My Sustainable Insurance Strategy is focused on addressing the challenges we face today and building a resilient insurance market for the future. With input from thousands of residents throughout California, this reform balances protecting consumers with the need to strengthen our market against climate risks.”

The rule comes as a flood of insurers has pulled out of California, which has seen intensifying wildfires and drought conditions in recent years, as well as Florida, which has been battered by coastal hurricanes while also facing unique vulnerabilities in the form of fraud rates and heavy litigation.

In 2023, Farmers announced a moratorium on new policies in the Sunshine State, the 15th insurer to do so over an 18-month period, and State Farm, California’s biggest homeowners insurer, did the same in the Golden State.

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