The state plans to allow insurers to take climate change into consideration when setting their rates.
California intends to let home insurance companies factor climate change into the way they calculate their rates, according to the chief regulator for the state.
The goal is to help prevent the loss of insurers from the state due to the rising risk of wildfires.
Wildfires, mudslides and other natural disasters associated with climate change have become increasingly commonplace and severe in the state. This has wreaked havoc on the coverage industry, which is facing a spike in the number and cost of claims resulting from these disasters.
In California, insurers haven’t been allowed to consider present or future risks when they set their rates that will determine a customer’s premiums for a policy. Instead, they are permitted to factor in only what has happened on a specific property to calculate its premiums.
That said, climate change is causing trends to rapidly change. Wildfires, windstorms, floods and other events have become increasingly large and common. With the Californian restriction, insurers are struggling to set prices that would keep them profitable. This is among the reasons that in the last year, seven of the top 12 insurers in the state have either halted or restricted new business there.
New home insurance rules are now being written to allow insurers to look forward when setting rates.
California Insurance Commissioner Ricardo Lara said that the state is creating new rules that will permit insurers to take the future into consideration when establishing their rates. That said, this will be permitted only to companies that agree to provide home insurance coverage to property owners living in areas where the highest risks are present, including those where wildfires are the most likely.
“Modernizing our insurance market is not going to be easy or happen overnight. We are in really unchartered territory and we must make difficult choices when the world is changing rapidly,” said Lara at a media conference.
The rule could also mean that home insurance rates could continue