California Department of Insurance outlines steps to stabilize market, expand FAIR Plan and introduce catastrophe modeling

The California Department of Insurance told the Palm Desert City Council on March 13 that the state is pursuing regulatory and technical changes to ease an insurance market squeezed by natural disasters and inflation.

"The insurance market is under stress," said Judith Pena, an outreach analyst at the California Department of Insurance (CDI). She said climate-driven wildfire risk, historic inflation and rapid growth in the FAIR Plan have left many homeowners with fewer, higher-cost options.

Pena described Proposition 103, approved in 1988, as the legal framework that requires insurers to obtain approval from the insurance commissioner before changing rates and gives the public an explicit role in the rate-review process. She said rate applications are to be reviewed within 180 days and that CDI must approve or deny filings within that window.

To address delays and improve transparency, CDI has hired additional staff, extended public hours (noted in the presentation as roughly 9 a.m.–6 p.m.) and opened a weekend 1‑800 line. Pena said CDI has also moved toward clearer filing requirements so insurers must submit complete applications.

The department outlined a Sustainable Insurance Strategy (SIS) initiated after a governor’s executive order to modernize rate-making. The effort includes faster review, "fair pricing," and incentives for insurers to write more policies in wildfire-prone areas rather than leave homeowners relying on the FAIR Plan, which Pena described as "meant as the last resort, not the first." She said reforms aim to both increase availability and protect consumers.

A core technical change is the use of catastrophe models, which CDI says allow assessment of risk at the parcel and community level rather than by ZIP code. "Catastrophe models improve risk prediction and ensure rates reflect actual risk," Pena said. She added that insurers who use these models and California-specific reinsurance-cost treatments have committed to write a significant share of new policies (cited in the presentation as about 85% of new policies) in high-risk areas; smaller insurers would be required to demonstrate that they could not do so based on their books.

Pena also discussed reinsurance—insurance that carriers buy to protect against large-scale disasters—and said rising reinsurance costs linked to climate-driven disasters are being allowed, for the first time in California, to be factored into rates so insurers can obtain coverage and remain in the market.

On the FAIR Plan, Pena said CDI has expanded coverage limits to better reflect rebuilding costs, including a new $20,000,000-per-structure limit for larger commercial properties such as homeowner associations and businesses. The change, she said, is intended to strengthen the Plan while the traditional market is encouraged to return.

Pena described outreach and mitigation work as complementary: CDI offers a "Safer from Wildfires" framework, a local climate-planning initiative, monthly educational webinars (the presentation cited a webinar series and named March 28 and an April 9 session) and a 10‑page planning guide for local governments. She offered to provide council members with details on how the public can participate in rate-review proceedings under Proposition 103.

Councilmember Gina Nastandi asked whether "outdated regulations" mentioned in the presentation referred to state environmental rules such as vegetation or water management; Pena said the presentation had meant that prior rate-making relied on outdated data and models, not that CDI was referencing particular environmental statutes, and added that the SIS was developed in coordination with Cal Fire and local partners and has been in the works since 2019.

An unidentified councilmember asked how the public can engage under Proposition 103; Pena said she did not have the exact public-engagement steps in the meeting slides but committed to send procedural details to the council after the session. The same councilmember raised concerns that some companies are "stopping writing" policies or nonrenewing rather than staying in California; Pena said insurers have met with the commissioner and publicly committed to resume writing policies once catastrophe modeling and reinsurance-cost rules are in place, with CDI estimating broader market movement in 2025 or possibly 2026.

Pena concluded by offering CDI contact channels and resources and said she would send the requested participation information to the council (she referenced sending it to "Mister Mejia"). The council recessed for 10 minutes.

The presentation described policy and technical changes planned or underway; it did not record any formal council action or vote during this session.