No law requires California homeowners to carry insurance, but the vast majority purchase it to protect against fires and other perils, or are required to do so by their mortgage lenders.

There is also no law requiring insurance companies to offer coverage in California, but most would prefer to do so in the nation’s largest concentration of assets to protect.

For decades, insuring California’s homes, farms and commercial properties was a mundane affair of willing sellers and buyers. However, the former have become less willing as the state faces an ever-increasing number of wildfires – even during the winter months – that destroy homes and businesses in fire-prone areas.

Last Friday, while the the last of these fires chased people from their homes in the picturesque seaside village of Malibu, Ricardo Larathe elected state insurance commissioner, officially revealed much of his plan to stem the exodus of insurers from California.

This would allow insurers to use computer modeling of future exposure to set premiums, while requiring them to offer coverage in at-risk communities roughly in line with their market shares. Until now, insurers set their rates based on past claims.

“Giving people more choices to protect themselves is how we will solve California’s insurance crisis,” Lara said in a statement. statement as he released details of the modeling plan. “For the first time in history, we are asking insurance companies to expand where people need help most. With climate change, we can no longer look to the past. We are innovative and forward-looking to protect Californians’ access to insurance.

He also stressed that in setting prices, insurers will have to take into account toughening efforts by threatened communities and landowners to reduce potential losses.

Lara claims support from environmental groups, farmers and other stakeholders, in addition to insurers. But it arouses strong criticism from Consumer Monitoringan organization that has sponsored historical changes in insurance regulation. The group also received millions of dollars in fees for its intervention in insurance rate cases and harshly criticized Lara throughout her tenure.

“Full transparency is what keeps insurance prices honest, but Commissioner Lara’s rule removes that protection,” Carmen Balber, executive director of Consumer Watchdog, said in a statement. “The rule will allow insurance companies to raise rates based on secret algorithms, but not expand coverage as promised.”

The new rules come into effect in January. Farmers Insurance, the second largest property insurer in California, has already promised to extend its coverage in response to Lara’s actions. The American Property Casualty Association, a trade group, also reacted positively.

“California will continue to have a robust regulatory and rate approval process that ensures rates reflect the true cost of covering claims,” the association said.

If the rules revealed last week are at the heart of Lara’s plans, other elements remain: strengthen the FAIR planthe California insurer of last resort for homeowners who cannot obtain coverage elsewhere, speeding the approval of insurance rate files and allowing insurers to include the costs of reinsurance (coverage of their potential losses) in the pricing.

Adopting Lara’s plans could result in higher premiums, but maintaining a viable insurance market is a vital factor in the state’s economy. The inability to obtain insurance would devastate the residential and commercial real estate market and force homeowners to pay for fire-related losses out of their own pockets.

Lara’s plans may not be perfect, but no one – including Consumer Watchdog – has come up with a better alternative. He should be credited with at least one attempt to resolve one of California’s existential crises.

Dan Walters is a CalMatters columnist.

Originally published: December 18, 2024 at 5:30 a.m. PST