California Sustainable Insurance Strategy (2023)
A California reform that allows forward-looking catastrophe models in rate filings, in exchange for insurers' commitment to write policies in wildfire-exposed areas.
In California, every homeowners insurance rate must be approved in advance, and insurers could justify it only with their historical losses. Facing wildfires, whose future risk far exceeds the observed past, many chose to stop writing, and households flowed back to the FAIR Plan, the insurer of last resort. The strategy launched by the insurance commissioner trades two concessions. Insurers may now base their filings on forward-looking catastrophe models, which credit mitigation measures, and pass through part of their reinsurance cost. In return, they commit to write in areas designated as "distressed" in proportion to their statewide market share. The bet is to reopen supply by accepting premiums closer to the risk.
Announced in September 2023, the strategy requires insurers using a catastrophe model or their reinsurance cost to write in distressed areas at least 85% of their statewide market share (or to grow their book there by 5%). The first forward-looking wildfire model, Verisk's, was cleared by the California Department of Insurance in July 2025, after a six-month review.
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