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Newsom Signs Executive Order Aimed at Fixing Homeowners' Insurance Crisis in California

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a man in a suit stands at a lectern in front of a sign that says 'California's sustainable insurance strategy'
California Insurance Commissioner Ricardo Lara announced a new plan on Sept. 21, 2023 aimed at keeping insurance companies from leaving the wildfire-prone state.  (Adam Beam/AP Photo)

Updated 10:15 a.m. Friday

Gov. Gavin Newsom issued an executive order (PDF) on Thursday pressing the state’s insurance commissioner to shore up California’s troubled insurance market as options for homeowners across the state are dwindling.

Citing increased risk from wildfire, major insurance companies have drastically pulled back their coverage in California this year. Both State Farm and Allstate announced they would not issue new policies in the state, while Farmers put a cap on the number of new homeowners policies each month. The governor’s new plan aims to keep those and other smaller insurance companies from leaving Californians without coverage, by essentially allowing insurers to consider climate risks when setting their rates.

Ricardo Lara, the state’s insurance commissioner, praised what he called an “emergency regulatory action” to address the declining options for California homeowners and business owners.

“The current regulatory framework does not meet our needs,” Lara told reporters at a press conference on Thursday afternoon. “Can consumers get the insurance they need? Can they get it today? And the answer, in all honesty, is no.”

As the risk for wildfire damage has gone up, prices for insurance have not increased to match that risk, creating less profit incentive for insurers to operate in the state.

At least seven of the country’s largest insurance companies have already stopped or plan to stop issuing new insurance policies in California, despite rate increases approved or pending with the Department of Insurance.

With fewer insurance options, more Californians are struggling to find insurance coverage for their homes and businesses. The FAIR Plan (PDF), a state-mandated insurance security net for people who can’t get insurance through no fault of their own, has more than doubled in the last five years, going from 126,709 policies in 2018 to 272,846 in 2022.

The issue has left those in fire-prone areas particularly unable to protect their houses, as wildfires have grown more common and more intense in recent years due to a changing climate, warming temperatures and drier foliage.

Overall damage from wildfires has also gone up, according to data from the U.S. Environmental Protection Agency.

California tightly restricts how insurance companies can price policies. Insurers can only look to the past when deciding how to set rates. They can’t consider current or future risks, like climate change.

Newsom’s executive order will increase Lara’s regulatory authority to stabilize California’s insurance market. Specifically, it calls on Lara to increase insurance coverage choices for consumers, particularly in areas most vulnerable to wildfire, by allowing insurers to consider climate risks when setting their rates.

The executive order also seeks to speed up the approval process for insurance plans, and direct the Department of Finance to consult with the state’s Department of Insurance to implement new regulations to achieve those goals.


“This is yet another example of how climate change is directly threatening our communities and livelihoods. It is critical that California’s insurance market works to protect homes and businesses in every corner of our state,” Newsom said in a press announcement Thursday afternoon. “A balanced approach that will help maintain fair prices and protections for Californians is essential.”

Last week, California lawmakers tried — and failed — to reach an agreement on how to fix the problem before the end of the legislative session last week.

The unsuccessful legislative approach appears to have prompted Newsom’s executive order using the regulatory process instead.

At the press conference on Thursday, Lara said that the state will adapt its laws to let insurers include climate risk as a factor in rate-setting. In exchange, they will be required to write more policies for homeowners in the highest risk areas.

Michael Wara, director of the Climate and Energy Policy Program at Stanford told KQED’s Political Breakdown this week that home insurance prices for some consumers will go up modestly with the plan. But, he said, “what will also occur is that insurance will be available to people in a way that it currently is not. So, it’s not a question of ‘is the price higher or lower,’ it’s ‘can you even get insurance?’”

However, the advocacy group Consumer Watchdog issued a letter (PDF) urging the governor not to waive the rules that have prevented price increases.

“A very small percentage of California’s insurance market – 3% – has been forced out of the California market into the FAIR plan,” the group wrote in the letter. It noted that Newsom has said he was one of those homeowners who has been pushed out of the private insurance marketplace.

“While this is unfair to you and others, it does not constitute a statewide emergency that justifies forcing the other 97% of people in the homeowners insurance market to pay more for their insurance,” the letter said.  “By signaling a state of emergency, you would be empowering the commissioner to put your 3% above the needs of the 97% — without any guarantees that the 3% would even be offered insurance coverage.”

But state lawmakers in areas like Napa, which is currently under a red flag warning for increased fire risk, celebrated the governor’s move.

“I want to thank the governor and insurance commissioner for stepping up to address California’s insurance crisis,” said state Sen. Bill Dodd (D-Napa). “Because clearly, the status quo is not working. It is critically important that we adopt policies and efficiencies that are going to ensure the availability of insurance. Given that the Legislature is not in session right now, utilizing the commissioner’s regulatory authority makes good sense.”

Denni Ritter, vice president at the American Property Casualty Insurance Association, called California’s 35-year-old regulatory system “outdated, cumbersome and fails to reflect the increasing catastrophic losses consumers and businesses are facing from inflation, climate change, extreme weather and more residents living in wildfire prone areas,” he said in a press statement following Newsom’s order.

“Everyone understands that California’s insurance market is in a spiraling crisis that requires immediate policy solutions to protect consumer access to the coverage they need.”

KQED editor Kevin Stark also contributed to this report.


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