California Proposes Insurance Discounts for Wildfire Mitigation

Recently, the California Insurance Commissioner Ricardo Lara proposed a regulation that would not only stop insurance companies from overcharging homeowners who have done wildfire mitigation to reduce their risk of wildfires but would also require insurers to take these mitigation efforts into account when deciding on a premium or whether to insure a specific property. 

Under current regulations, homeowners can do thousands of dollars’ worth of wildfire mitigation on their property but can still be cancelled by their insurance company or not be offered a discount on their premium for the mitigation work they had done. 

Consumer Watchdog, Consumer Federation of America, and Consumer Federation of California are planning to submit testimony in support of the Commissioner’s proposed regulations. 

Some of the mitigation efforts that homeowners are performing include:

• Using fire resistant roofing materials 
• Replacing windows with ones that incorporate fire-resistant materials
• Clearing brush and combustible objects around the property
• Communities as a whole taking steps to reduce wildfire risk

While these consumer groups are behind the Insurance Commissioners regulation, they would like to see a loophole in the regulation closed that allows insurers to simply non-renew or refuse to insure homeowners rather than giving the required discount.

“We strongly support mandating premium discounts for homeowners who take steps to reduce their wildfire risk and requiring transparency in how companies use models and scores to determine that risk. However, it’s not enough to require premiums to reflect mitigation efforts. To effectively protect homeowners who are reducing fire risk, we continue to advocate that the regulation must be amended to apply to insurers’ decisions about whether to sell and renew coverage. Without these amendments, insurers will avoid giving premium discounts to property owners who undertake costly mitigation measures by nonrenewing them without accountability,” wrote the consumer groups in comments that were submitted with the regulation recently.

The Insurance Commissioner and consumer advocates claim that California homeowners need these protections as insurers have been overcharging for insurance or outright refusing to cover certain homes and even entire neighborhoods which is in violation of the anti-discrimination provisions under insurance law Proposition 103.

These consumer groups are also in favor of portions of the regulation that would enforce Proposition 103’s transparency requirements which require insurance companies to publicly disclose information regarding how they use risk models to set premiums.   

“Wildfires have long been an expected result of climate change. But the insurance companies’ response has been to arbitrarily raise rates and withdraw from neighborhoods throughout California, destabilizing our economy. Californians who invest in protecting their homes and their communities from the devastation of wildfires must be protected against price gouging and losing insurance coverage,” said Pamela Pressley, Senior Staff Attorney, on behalf of Consumer Watchdog in a recent press release. 

“Requiring discounts for homeowner and community mitigation efforts that are proven to lower wildfire losses is necessary to ensure that premiums aren’t excessive or unfairly discriminatory. But Commissioner Lara must add protections needed to prevent insurance companies from denying or nonrenewing coverage to homeowners who invest in home-hardening measures. These measures are well within the Commissioner’s legal authority,” continued Pressley in the press release.

“Consumers who do the right thing by hardening their home ought to be treated the right way by insurance companies. Right now, that’s not happening, and it needs to change immediately in the strongest pro-consumer way possible,” said Robert Herrell, Executive Director of the Consumer Federation of California in the press release.

Consumer Groups request action

The recent hearing was the fourth public meeting that the Insurance Commissioner has had since October 2020 to help deal with skyrocketing premiums as well as insurers pulling out of entire neighborhoods. 

Insurance companies have been blaming Proposition 103 for their actions. They claim they need to be free of public oversight when it comes to denying coverage in specific areas. They also claim they should be permitted to use secret models, algorithms and insurance scores and not be forced to reveal their proprietary methods for setting a premium.

The new regulations (should they be put into effect) would require insurers to be more transparent regarding their decisions about coverage and premiums. The following are proposed by the new regulations:

• Would require insurers to provide premium discounts to property owners who undertake mitigation efforts to lower their risk of wildfire losses.
• Provide clear standards to enforce Proposition 103’s requirements that insurance companies file a complete rate application and publicly disclose all information submitted to the Commissioner, including the models they use to assess wildfire risk and related documentation, which insurers often seek to keep confidential.
• Require insurance companies to notify consumers about their wildfire “risk score” and the steps they can take to lower their risk and premiums. Consumers would also have the right to appeal their risk scores.

In addition to the steps being proposed by the Insurance Commissioner, consumer groups proposed the following:

• Strengthening the mandatory mitigation factor standards with clearer terminology.
• Requiring that mandatory mitigation factors and public filing and disclosure of models also apply to wildfire risk models and scores used to determine eligibility and nonrenewal criteria.

• Clarifying in explicit terms that wildfire risk models are not allowed to be used to project losses for determining overall rates under existing regulations.
• Ensuring that any wildfire risk models used by insurers are based on the best available scientific information and conform to actuarial standards of practice and applicable statutes and regulations.
• Cleaning up and strengthening the wildfire score notice and appeal requirements and making them applicable to scores used for underwriting.