Planet Earth

published : 2023-09-23

California Insurance Commissioner Takes Action to Include Climate Risks in Property Insurance Rates

Climate-driven wildfires and hurricanes push US property catastrophe reinsurance rates up by 50%

Aerial view of a California residential area at high risk for wildfires, taken with a DJI Mavic Air 2

In a groundbreaking move, California Insurance Commissioner Ricardo Lara has implemented measures that allow property insurers to factor in climate risks, including wildfires, when determining rate prices. This move comes as wildfires and storms intensified by the threat of climate change continue to wreak havoc in the state.

Over the past few years, California has witnessed an alarming increase in catastrophic events, prompting seven of the state's top insurers, such as State Farm and Liberty Mutual, to suspend or restrict new business. As a result, the government's Fair Access to Insurance Requirements (FAIR) Plan, designed to act as an insurer of last resort, has now claimed a 3% share of California's insurance market.

"We are at a major crossroads on insurance after multiple years of wildfires and storms intensified by the threat of climate change," stated Commissioner Lara, emphasizing the urgent need for action.

Insurance Commissioner Ricardo Lara addressing a press conference on climate risks in property insurance rates, taken with a Nikon D850

Governor Gavin Newsom also played a significant role in expediting these measures. His executive order urged regulatory action to expand coverage in underserved areas, account for catastrophe risks in insurance rates, and ensure the FAIR Plan's financial stability.

Highlighting the gravity of the situation, a report from broker Gallagher Re revealed that property catastrophe reinsurance rates in the US surged by as much as 50% during the July 1 renewal date. States like California and Florida, increasingly affected by wildfires and hurricanes, are experiencing the devastating consequences of climate change.

Fitch, a credit rating agency, further explained that the withdrawal of larger insurance carriers from California's residential property insurance market underscores the ongoing regulatory constraints, rising costs, and heightened catastrophe losses.

Destruction caused by a recent wildfire in California, showcasing the devastating impact of climate change, taken with a Canon EOS R6

The transformative decision by Commissioner Lara provides a glimmer of hope amidst the current insurance crisis. By incorporating climate risks into insurance rates, insurers will be encouraged to underwrite in at-risk areas, ultimately reducing reliance on state-funded coverage.

As the battle against climate change continues, this pivotal moment in the insurance industry may pave the way for increased resilience and proactive measures in the face of climate-related challenges.