Insurance companies that stopped providing home coverage to hundreds of thousands of Californians in recent years as wildfires became more destructive will have to again provide policies in fire-prone areas if they want to keep doing business in California under a state regulation announced Monday.
The rule will require home insurers to offer coverage in high-risk areas, something the state has never done, Insurance Commissioner Ricardo Lara's office said in a statement. Insurers will have to start increasing their coverage by 5% every two years until they hit the equivalent of 85% of their market share. That means if an insurer writes 20 out of every 100 state policies, they'd need to write 17 in a high-risk area, Lara's office said.
Major insurers like State Farm and Allstate have stopped writing new policies in California due to fears of massive losses from wildfires and other natural disasters.
In exchange for increasing coverage, the state will let insurance companies pass on the costs of reinsurance to California consumers. Insurance companies typically buy reinsurance to avoid huge payouts in case of natural disasters or catastrophic loss. California is the only state that doesn’t already allow the cost of reinsurance to be borne by policy holders, according to Lara's office.
Opponents of the rule say that could hike premiums by 40% and doesn't require new policies to be written at a fast enough pace. The state did not provide a cost analysis for potential impact on consumers.
