California Takes Bold Step to Ensure Homeowners Get Fair Insurance Coverage
In a groundbreaking move, California has introduced a new regulation that requires insurance companies to provide coverage to homeowners in high-risk fire-prone areas. This decision comes after major insurers like State Farm and Allstate stopped writing new policies in the state due to concerns over massive losses from wildfires and natural disasters.
A Historic Moment for California
Under the new rule, insurance companies will be required to increase their coverage in high-risk areas by 5% every two years until they reach 85% of their market share. This means that if an insurer writes 20 out of every 100 state policies, they will need to write 17 in a high-risk area. In exchange, the state will allow insurance companies to pass on the costs of reinsurance to California consumers.
A Shift in the Insurance Landscape
California is the only state that doesn’t currently allow the cost of reinsurance to be borne by policyholders. Opponents of the rule argue that this could lead to a 40% hike in premiums and doesn’t require new policies to be written quickly enough. However, Insurance Commissioner Ricardo Lara’s office believes that this move will ultimately benefit Californians.
Climate Change Takes Center Stage
The new rule is part of Lara’s effort to persuade insurers to continue doing business in the state. Earlier this month, he unveiled another rule that allows insurers to consider climate change when setting their prices. This move is crucial, as wildfires have become increasingly destructive in California due to the changing climate.
A Safety Net for Homeowners
The ultimate goal of the new rules is to get homeowners out of the California Fair Access to Insurance Requirements (FAIR) Plan, which often serves as a last resort for those living in areas threatened by wildfires. The FAIR Plan provides basic coverage, but it’s mainly designed as a temporary safety net until policyholders find a more permanent option.
A Growing Concern
Wildfires have always been a part of life in California, but the increasing intensity and frequency of these fires have made them a growing concern. The 2018 fire in Paradise, California, killed 85 people and destroyed about 11,000 homes, leaving many residents struggling to find home insurance.
A Mayor’s Plea
Steve Crowder, the mayor of Paradise, lost his house and business in the fire. Despite paying roughly $5,000, his home is insured for roughly $100,000 less than its value, and the house’s contents are only half-covered. “You couldn’t rebuild what you got for what it’s insured for,” he said. His constituents face similar problems, with policies skyrocketing from roughly $1,200 annually before the Camp Fire to $5,000 now — or even up to $20,000 a year for large homes.
A Cautious Welcome
While Crowder welcomes the state’s new rules, he remains skeptical about their impact. “Anything that will help get insurance in California, period, is helpful,” he said, but added: “Let’s wait and make sure it happens before we get excited.”
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