CA Insurance Premiums Likely to Rise

From CalMatters and their economy reporter Levi Sumagaysay:

California homeowners and renters should prepare for their insurance premiums to rise: The Insurance Department on Thursday approved the first catastrophe model that insurers can factor into the rates they charge policy holders.

Citing increased fire risks and rising costs, insurers have pulled back from providing homeowners and fire insurance in the state in recent years. The insurance commissioner’s plan to try to fix the problem and restore insurance availability includes allowing insurance companies to use catastrophe modeling.

Catastrophe modeling combines historical data with projected risk and losses. Insurers had been pushing to use it in California just like they have in all other states. As a condition of being allowed to use the modeling in setting their rates, insurance companies will be required to write more policies in the state’s high-risk areas.

The insurance department has been reviewing models since February and is continuing to review two other models. The department said the models should help avoid “year-to-year (premium) fluctuations following major disasters” while taking into account wildfire mitigation at the individual, community, state and federal levels.

A spokesperson for the American Property Casualty Insurance Association said insurers are now reviewing the newly approved model. Companies that choose to use the model will incorporate it into the rate requests they submit to the insurance department.

Another part of Insurance Commissioner Ricardo Lara’s plan will allow insurers to also account for their reinsurance costs in setting rates. Combined with catastrophe modeling, this additional factor is expected to raise property insurance premiums for Californians in the short term — with the hopes of stabilizing the market.

But consumer advocates critical of Lara’s plan have pointed out that other states that have long allowed insurers to consider both factors in their rate-setting have also seen rising premiums and availability issues.