Article

California has implemented significant regulatory changes to address its ongoing home insurance crisis, particularly in light of recent wildfires and climate change concerns. Here are the key regulatory updates:

Catastrophe Modeling

The California Department of Insurance now allows insurers to use forward-looking catastrophe models when setting rates. This change enables companies to:

• Factor in climate change risks
• Consider fire mitigation efforts
• Use complex computer models instead of relying solely on historical data1

Reinsurance Costs

Insurers can now include the cost of reinsurance (insurance for insurance companies) in their premium calculations. This is a first for California and aligns with practices in other states.

Coverage Requirements

Insurance companies are now legally required to write policies in wildfire-prone areas "equivalent to no less than 85% of their statewide market share". This requirement will be phased in with a 5% increase every two years.

Implementation and Timeline

• The new regulations took effect on January 2, 2025
• Full implementation of all changes is aimed to be completed by December 2025

Expected Impacts

• Consumer advocacy groups project insurance premiums could rise by 40% to 50%, though this is contested by the Insurance Commissioner
• The insurance industry argues that rising costs necessitate premium increases

Market Stability

• The regulations aim to encourage insurers to write more policies in high-risk areas
• Some insurers, like Farmers Insurance, have resumed issuing policies in certain areas, often with stricter terms and higher premiums

Auto Insurance Changes

In addition to home insurance changes, California has also increased its minimum auto liability insurance requirements as of January 1, 2025. The new minimums are:

• $30,000 for bodily injury or death of one person
• $60,000 for bodily injury or death of all persons
• $15,000 for property damage

These regulatory changes represent a significant shift in California's approach to insurance, balancing the need for market stability with consumer protection in the face of increasing climate-related risks. With these expected changes and rate increases, captive insurance will continue to be a potential solution for insureds that are looking to stop burning money in the standard market and retain up to 85% of the premium back into their captive insurance company. Reach out to Captives.Insure today to schedule a complimentary evaluation and determine if a captive may be the right fit for your business.