California Launches Sustainable Insurance Strategy to Combat Climate Risks
California Insurance Commissioner Ricardo Lara has introduced the state’s Sustainable Insurance Strategy, a comprehensive initiative designed to safeguard consumers, homeowners, and businesses against the growing challenges of climate change. This strategy aims to ensure the long-term health and sustainability of the insurance market.
In order for us to fully withstand climate change, we need all state insurance markets to thrive, including Florida, Hawaii, Colorado, and others that are seeing major challenges. With climate change, we are all connected.
This strategy is a proactive measure to address the impacts of climate change, which is a leading driver of challenges in the state’s insurance market. Commissioner Lara emphasized the importance of a thriving insurance market, stating, “In order for us to fully withstand climate change, we need all state insurance markets to thrive, including Florida, Hawaii, Colorado, and others that are seeing major challenges. With climate change, we are all connected.” This demonstrates the interconnected nature of state insurance markets.
Addressing the Need for Change
The strategy responds to a convergence of factors, including the climate crisis, rising inflation, and specific challenges within California’s insurance market. As Commissioner Lara noted, “Unlike public utilities, which must provide service to all residents, insurance companies do not have that requirement.” This underscores the need for a targeted approach to enhance market stability and protect consumers.
Key Goals of the Strategy
The Sustainable Insurance Strategy is guided by three main goals:
- Accessible Insurance: Making insurance available and affordable, especially in high-risk areas affected by climate change.
- Resilient Insurance Market: Strengthening the insurance market’s ability to withstand climate change and economic fluctuations.
- Community Protection: Implementing measures to protect communities from climate change impacts like wildfires and other natural disasters.
Improving Insurance Availability
A key aspect of the strategy involves an agreement for insurance companies to write at least 85 percent of their statewide market share in areas with limited insurance options. This aims to counter the growing reliance on the FAIR Plan and improve access in underserved areas.
Insurance companies are required to meet this commitment. Non-compliance will result in enforcement measures, including addressing issues with excessive rates which can be applied by the Department of Insurance.
Further Enhancements
The “Safer from Wildfires” regulation plays a critical role in this strategy by ensuring homes and businesses compliant with this regulation receive priority in returning to the standard insurance market. This approach encourages safety measures to improve insurance access.
Catastrophe modeling will also be utilized to accurately assess and price climate-related risks, such as wildfires. This will allow for insurance rates to reflect the benefits of wildfire safety and mitigation efforts.
By incorporating California-only net reinsurance costs in rates, the strategy seeks to prevent Californians from shouldering the costs of disasters occurring outside the state. This is a crucial step in managing climate-related risks and consumer protection.
Enforcement and Implementation
The Department of Insurance will oversee the implementation and enforcement of these measures. Commissioner Lara has stated, “We will enforce requirements for complete rate applications and increase staffing to oversee these important regulatory changes.” The aim is to complete all changes by December 2024, with some elements implemented sooner.
Public Involvement
Commissioner Lara encourages active participation from stakeholders, lawmakers, and the public, emphasizing transparency and collaboration. Public meetings and the rulemaking processes will allow for public input. He has emphasized the importance of the community, stating “Public input is vital to making good policy. All groups will have an opportunity to have their voices heard through the regulatory process – and I will work with all who are constructive and want to help find real solutions.”
Building on Past Actions
This strategy builds on Commissioner Lara’s previous proactive efforts to address consumer needs, representing a comprehensive approach to confront evolving market problems, especially those related to climate change. This strategy supports the insurance market and the consumers it serves.
