Wildfires have devastated areas across California, leading insurers, homeowners, and regulators to reconsider how they manage and handle risks. As a result, in October 2022, California approved a regulation requiring rate filing from every personal and commercial property insurer that uses California wildfire risk in the rating of a policyholder or applicant.

Effective April 12 of this year, the regulation, set in motion and enforced by commissioner Ricardo Lara, requires insurers to submit new rate filings incorporating wildfire safety standards created by the California Department of Insurance (CDI) and to establish a process for releasing California wildfire risk determinations to residents and commercial businesses within 180 days.[1]

According to the CDI, a key benefit of this regulation is its transparency, requiring insurance companies to provide consumers with their individual property’s wildfire risk score and allowing them the right to appeal that score. Of course, the lower a property score is, the less prone a particular property is to a wildfire event.

The primary goals of the new regulation are to protect consumers by reducing California wildfire risks to structures, nearby surrounding areas, and the community, and to ensure that affordable insurance is made available to all California residents. Currently, the CDI requires insurers to offer discounts to property owners who have implemented the wildfire safety and mitigation efforts presented in the Safer From Wildfires guidelines.

In a recent press release, Lara stated that this regulation “is the result of listening closely to the needs of consumers and businesses and crafting common sense, lasting solutions that strengthen our ability to protect Californians from the threat of climate change-intensified wildfires.”

California is the first state to implement this type of industry-changing “ground up” legislation in this first-ever partnership between the CDI and the emergency preparedness agencies, and there may be more changes to come in the near future, once this regulation is fully adopted by Gov. Gavin Newsom’s administration. If successful, when fully implemented, it is the hope of the CDI that 100% of the residential and commercial insurance market will be aligned with the Safer from Wildfires framework.

To assist insurers and commercial insurance agents and retail brokers in learning more about mitigation in rating plans, California wildfire risk models regulation and compliance requirements, the CDI has created a frequently asked questions guide and Mitigation in Rating Plans and Wildfire Risk Models Questionnaire.

Kristi W. Dean, Managing Partner

Stone Dean LLP

Kristi is an experienced litigator and transaction attorney who represents clients in business transactions and litigation disputes. Her litigation practice focuses on trade secrets, unfair business competition, insurance law and complex business disputes, with a focus on insurance-related issues. Kristi can be reached at 818-999-2232 or kdean@stonedeanlaw.com.

[1]California Department of Insurance.

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