The Golden State, California, has unveiled a groundbreaking regulation known as the Net Cost of Reinsurance in Ratemaking, marking a significant step in revolutionizing the insurance landscape. This new rule, mandated by the California Department of Insurance, is designed to provide coverage in high-risk areas, offering expanded options for Californians and bolstering the state’s insurance market against the challenges of wildfires and climate change.
Key points of the Net Cost of Reinsurance in Ratemaking Regulation include:
- Modernization of reinsurance practices to enable insurers to extend coverage and issue policies in communities facing heightened risks, ensuring market stability.
- Mandatory coverage for wildfire-prone regions, requiring insurers to underwrite policies for at least 85% of the statewide market share, with incremental annual increases until the target is achieved.
- Capping of reinsurance costs that insurers can pass on to consumers, establishing an industry-wide standard to prevent excessive charges to policyholders.
- Promotion of competition among insurers for optimal reinsurance prices, benefiting consumers by ensuring they receive the best value.
- Limiting costs to California-only incidents to shield consumers from shouldering the financial burden of disasters in other regions.
- Alignment with forward-looking wildfire catastrophe models to provide more accurate rate predictions and address premium spikes following major wildfires.
- Mandating the use of consistent models for risk assessment and consumer protection to curb “model shopping” by insurers.
California Insurance Commissioner Ricardo Lara expressed the significance of this regulation in building a resilient insurance market for the future while addressing current challenges. By balancing consumer protection with the need to fortify the market against climate risks, this reform aims to create a sustainable insurance landscape.
In a related development, Delos Insurance Solutions, a San Francisco-based managing general agent catering to homeowners in wildfire-prone areas, has secured $9 million in Series A funding. Utilizing cutting-edge technology like satellite imagery and wildfire science, Delos identifies homes with lower wildfire risk, offering an alternative to traditional insurers that have withdrawn from high-risk regions.
California’s new insurance regulation underscores the state’s commitment to addressing climate risks and enhancing consumer protection in the face of evolving challenges. It sets the stage for a more resilient and competitive insurance market, offering Californians greater peace of mind in an uncertain climate landscape.
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