New Regulations Aim to Encourage and Control In 2024, the U.S. saw over 60,000 fires burning almost 9 million acres of land, over 1,400 tornadoes, and 11 hurricanes (joining only eight other hurricane seasons since 1851 with that many). Unsurprisingly, insurers have raised premiums and pulled back from the riskiest areas. High-risk states are creating new regulations aimed at stabilizing the “home insurance crisis.” Take California, where many insurers had already been paying more in claims and expenses than they were collecting in premiums, even before the $4 billion and counting in claims related to the Los Angeles fires. California’s FAIR Plan is one of 36 state-backed property “insurers of last resort” around the country, set up to provide coverage for homeowners who cannot find insurance in the private market. But it is underfunded, has a growing pool of insureds, has been denied certain requested rate increases, and has been subject to mandated coverage expansions (including a 2022 expansion for water damage, theft, and loss of use that the FAIR Plan unsuccessfully sought to enjoin and a 2024 expansion for high-value commercial coverage). If threatened with insolvency, the FAIR Plan may levy an assessment on its member insurers (with an approval process and conditions on the insurers recouping those amounts from policyholders). Every insurer licensed to directly write basic property insurance in the State of California is a FAIR Plan member insurer as a condition of licensure. In a September bulletin, California Insurance Commissioner Ricardo Lara foreshadowed that “a major wildfire in one geographical area concentrated with FAIR Plan-insured properties could overwhelm the FAIR Plan’s reserves and its capacity to quickly and fully pay consumers’ claims.” Lara has now approved FAIR Plan’s request for a $1 billion assessment on member insurers, resulting from losses related to the Los Angeles fires. In a February 11, 2025 bulletin, Lara described procedures through which the insurers may request to recoup 50% of their payments. To incentivize insurers to stay in (or return to) the state, Lara implemented new regulations in December 2024 pursuant to a “Sustainable Insurance Strategy.” The Catastrophe Modeling and Ratemaking Regulation allows insurers to use forward-looking catastrophe modeling as part of ratemaking to adjust for disaster risk. Model information must be submitted as part of rate applications. The Net Cost of Reinsurance in Ratemaking Regulation allows insurers to incorporate the cost of reinsurance in ratemaking. Both regulations are effective immediately. With the rate increase carrots comes the stick. All homeowners’ insurers must increase the writing of comprehensive policies in wildfire-prone areas equivalent to no less than 85% of their statewide market share, with 5% increases every two years until they meet this threshold. We expect to see insurers carefully continuing to assess their participation in California and other highrisk markets. Further, as states promise their residents innovative solutions—and some U.S. Senators discuss the federalization of home insurance and expanded forms of disaster relief—the future of home insurance markets is uncertain. Insurers may also need to innovate and increase collaboration with insurance departments and governments. For example, regulatory regimes could take into account policies about land use, development, building materials, and landscaping. The best solutions for reducing risk may include participation by state and local governments, insurers, and homeowners alike. n 3 Insurance Insights Spotlight Our thoughts are with everyone affected by the Los Angeles wildfires, including the over 2,000 families who have lost their homes or businesses. We recognize everyone in the insurance industry who is working to help those families navigate this catastrophe. We expect to see litigation in the coming months that includes disputes about: • Business interruption • Civil authority coverage • Bad faith • Regulatory and compliance issues • Insurance fraud issues • Use of AI tools for claims adjustment • Valuation challenges • Challenges to non-renewals of policies and misunderstandings about the notion of pooling risk and how insurance works We stand ready to assist our insurer clients as these issues surface and evolve. We report below on new California regulations that seek to stabilize the California homeowners’ insurance market. We also provide updates from several of our core insurance teams. Tiffany Powers, Andy Tuck, Sam Park, Tania Kazi (Rice) Welcome to Insurance Insights 2 Special: California Home Insurance Landscape
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