Building a Stronger Home Insurance Market for California

Building a Stronger Home Insurance Market for California Report #283 | November 2024 Milton Marks Commission on California State Government Organization and Economy www.lhc.ca.gov LITTLE HOOVER COMMISSION Dedicated to Promoting Economy and Pedro Nava Efficiency in California State Government Chair The Little Hoover Commission, formally known as the Milton Anthony Cannella* Marks “Little Hoover” Commission on California State Government Vice Chair Organization and Economy, is an independent state oversight agency. Dion Aroner David Beier By statute, the Commission is a bipartisan board composed of five public members appointed by the governor, four public Asm. Phillip Chen members appointed by the Legislature, two senators and Gil Garcetti two assemblymembers. José Atilio Hernández Jason Johnson In creating the Commission in 1962, the Legislature declared Sen. Dave Min its purpose: Asm. Liz Ortega ...to secure assistance for the Governor and itself in Janna Sidley* promoting economy, efficiency and improved services in the Sen. Scott Wilk transaction of the public business in the various departments, *Served on study subcommittee agencies and instrumentalities of the executive branch of the state government, and in making the operation of all state departments, agencies and instrumentalities, and all expenditures of public funds, more directly responsive COMMISSION STAFF to the wishes of the people as expressed by their elected Ethan Rarick representatives... Executive Director Tamar Foster The Commission fulfills this charge by listening to the public, Deputy Executive Director consulting with the experts and conferring with the wise. In the course of its investigations, the Commission typically empanels Krystal Beckham advisory committees, conducts public hearings and visits Daniel Harris-McCoy government operations in action. Ashley Hurley Shara McAlister Its conclusions are submitted to the Governor and the Legislature Allie Powell for their consideration. Recommendations often take the form of legislation, which the Commission supports through the legislative process. Contacting the Commission All correspondence should be addressed to the Commission Office: Little Hoover Commission 925 L Street, Suite 805, Sacramento, CA 95814 (916) 445-2125 | LittleHoover@lhc.ca.gov This report is available from the Commission’s website at www.lhc.ca.gov. Letter from the Chair November 7, 2024 The Honorable Gavin Newsom Governor of California The Honorable Mike McGuire The Honorable Brian Jones President pro Tempore of the Senate Senate Minority Leader and members of the Senate The Honorable Robert Rivas The Honorable James Gallagher Speaker of the Assembly Assembly Minority Leader and members of the Assembly DEAR GOVERNOR AND MEMBERS OF THE LEGISLATURE: Earlier this year, following extensive media coverage of an increasing number of home insurance cancellations and rapid growth in the state’s safety-net insurance option, the Little Hoover Commission launched a study to examine California’s home insurance market. There have been clear signs for many years that serious problems were brewing in the home insurance industry. In some cases, the consequences for failing to promptly address this crisis have had significant impacts across California’s economy, with ramifications spilling into the real estate, construction, and financial services sectors. In that the responsibility to monitor and regulate homeowner insurance resides with the California Department of Insurance and the Insurance Commissioner, one wonders why action wasn’t taken sooner. The Commission heard moving testimony from local leaders representing communities across the state, struggling to assist their constituents find affordable and suitable home insurance. On behalf of their constituents, these leaders voiced frustrations many Californians experience when seeking options to insure their homes or understanding what they must do to protect their properties against the growing threat of climate-related disasters, such as wildfire. Too many told stories of homeowners, unable to afford coverage for their home, making the difficult decision to go without. At the same time, the Commission also heard testimony from insurers who said they were eager to maintain business in the state but frustrated by what they see as an unfair regulatory framework. Some consumer advocates testified in defense of the state’s regulatory system and argued that it was not to blame for whatever problems exist. All agreed more must be done to resolve this market crisis. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 1 Letter from the Chair November 7, 2024 Unfortunately, throughout the Commission process one voice was voluntarily absent – that of the Insurance Commissioner or anyone from the California Department of Insurance. Despite repeated invitations from the Commission and offers to schedule a meeting at the convenience of the Department, our efforts were rebuffed. The Commission appreciates the testimony from former Insurance Commissioner Dave Jones and received input from former Insurance Commissioner Steve Poizner. That the current Insurance Commissioner did not participate is inexplicable and irresponsible. Stabilizing California’s home insurance market will not be easy. Yet, in this report, the Commission offers a series of recommendations to work toward that goal. The Commission respectfully submits this work and is committed to working with you to build a stronger and more stable home insurance market. Sincerely, Pedro Nava, Chair Little Hoover Commission 2 | LITTLE HOOVER COMMISSION Table of Contents EXECUTIVE SUMMARY..........................................................................4 INTRODUCTION .....................................................................................6 BACKGROUND: THE STATE OF CALIFORNIA’S HOME INSURANCE MARKET............................................................................8 STRATEGIES TO STABILIZE CALIFORNIA’S HOME INSURANCE MARKET...........................................................................15 Move Forward With Catastrophe Modeling Regulations, But Take Steps to Ensure Public Oversight and Recognition of Climate Mitigations.......................................................................................15 Allow Insurers to Account for Reinsurance Costs in Rate Setting...............19 Improve Accessibility and Timeliness of Insurance Information................20 Align Information and Requirements Around Mitigating Fire Risks and Maintaining Insurability...........................................................................22 Ensure Homeowners Have Access to All Options for Home Insurance......26 Leverage Property Condition and Risk Information to Inform Policy Decisions and Investments..............................................................................27 Establish a Public Catastrophe Model for the State.....................................28 Help Homeowners Protect Their Properties Against Fire............................30 APPENDIX A: SELECT WILDFIRE HOME MITIGATION GUIDELINES..........................................................................................34 APPENDIX B: LETTER TO COMMISSIONER LARA FROM CHAIRMAN NAVA................................................................................38 APPENDIX C: CHRONOLOGY OF SELECT EVENTS IMPACTING CALIFORNIA’S HOME INSURANCE MARKET...............41 NOTES....................................................................................................45 BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 3 Executive Summary California’s homeowners insurance market is in crisis, Regulatory reforms are underway to allow insurers impacting homeowners and insurers alike. to use catastrophe models to better estimate the potential risk of catastrophic events when setting Today, Californians continue to pay more for their rates for home insurance. While moving forward home insurance than in previous years. Despite with these reforms, the state should ensure a strong these price hikes, homeowners here have more mechanism for public oversight of the catastrophe affordable premiums than those in many other models used by insurers, should clarify how insurers states. In addition, more homeowners are continuing will account for any improvements homeowners or to lose their insurance coverage than in previous communities make to reduce the risks of fire, and years, and many experience frustration trying to find require insurers account for mitigations in their comparable alternatives. With a contracting market, underwriting models. an increasing number of homeowners have turned to the California FAIR Plan, the state’s insurer of last Allow Insurers to Account for resort, which typically provides basic coverage at Reinsurance Costs in Rate higher prices than other policies. Setting At the same time, insurers say they are contending Insurers currently are prohibited from including with growing risks and rising costs, largely associated the cost of reinsurance when setting rates for with the ongoing risk of extreme losses resulting home insurance. Proposed regulations would allow from catastrophic wildfires. In recent years, many insurers to incorporate some of these costs. These insurers have decided to pull back from the state – reforms should be finalized and implemented with shrinking their portfolio or pausing writing new home expediency. insurance policies – to protect against significant wildfire losses. Improve Accessibility and Timeliness of Insurance While the Insurance Commissioner – who declined Information to testify before the Commission – has introduced a series of regulatory reforms to make it easier for It is excessively difficult to answer basic questions Californians to obtain home insurance, the changes about California’s home insurance market, are not expected to take effect until 2025 with particularly through information available from the implementation still further away. In this report, Department of Insurance. Some important data the Commission outlines 11 recommendations to is unavailable online, some is either difficult to inform these reforms and stabilize California’s home access or incomplete, and some is locked away in insurance market. inaccessible documents. The Department should Ensure Catastrophe Modeling modernize its website to make data and information more user-friendly and accessible and to ensure Regulations Include Public that key market indicators are updated regularly, Oversight and Recognize comprehensive, and easily searchable. Climate Mitigations California remains the only state to prohibit insurers from using forward-looking probabilistic models to set their insurance rates. 4 | LITTLE HOOVER COMMISSION Align Information and Leverage Property Information Requirements to Mitigate Fire to Inform Policy Decisions Risks and Maintain Insurability Currently, much valuable parcel-level information Homeowners need consistent, reliable, science- about a property’s condition and risk is siloed by backed information about how to protect their individual insurance carriers for proprietary use homes and communities from fire. Today, when assessing risk and writing policies. Yet, if made homeowners may access fire safe guidelines from available to the public, this risk information could a variety of sources, but the advice is inconsistent, significantly benefit homeowners, policymakers, and it is not clear how improvements may affect a fire officials, city planners and others. The state homeowner’s ability to secure insurance. Guidelines should create an open, shared data clearinghouse of for communities to effectively mitigate fire risk are property risk information. not currently available. The state should define Establish a Public Catastrophe a fire safe minimum set of core, evidence-based Model for the State mitigations for homeowners and ensure that homeowners are not prohibited from following them. The Insurance Commissioner has formed a work Additionally, the state should work to define similar group to explore the creation of a public wildfire evidence-based guidelines for communities. catastrophe model, a tool that if created could provide the public and others with a detailed Ensure Homeowners Have assessment of risk across the state. In partnership Access to All Options for Home with a multidisciplinary team of experts, the state Insurance should take steps now to develop an open-source, public risk model to assess the risks of wildfires The state’s home insurance market is intended to be and other climate-related catastrophes and predict a three-tiered system. Most homeowners will insure insured losses for homes and communities. through the “admitted market” of companies licensed to write policies in the state. If unable to acquire Help Homeowners Protect Their coverage through the admitted market, homeowners Properties Against Fire may turn to “surplus lines” – companies based outside California and regulated by their home state Making a home fire safe can involve significant time or country. As a last resort, homeowners may turn and expense, yet doing so can help homeowners to the state’s FAIR Plan. Yet it is not clear if brokers protect and insure their properties. California should and agents are fully aware of the surplus lines as an consider implementing a range of solutions to better alternative to the FAIR Plan. The Department should support and encourage homeowners to proactively provide on its website clear instructions for brokers protect their properties against fire hazards. and agents on how to contact California-licensed surplus line brokers. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 5 Introduction California is in the midst of a crisis in its homeowners While state leaders have been working to introduce insurance market that is straining homeowners and reforms to stabilize the crisis, insurers and insurers alike. consumer advocates appear to envision different sets of solutions. Central to the disagreement is a Californians hold approximately 8.8 million home complicated policy discussion about how to balance insurance policies across the state.1 This large affordability with availability, and the rights of portfolio of insured properties, combined with homeowners to access adequate protections for their the California’s high property values, means that investments with the rights of private companies to insurers are exposed to greater risk from losses operate solvent – if not profitable – businesses. Much here than the rest of the nation. In recent months, of this is tied up in the role and policies established many of the largest insurance carriers in the state by the state’s Insurance Commissioner, responsible have announced decisions to tighten underwriting for approving insurance rates and regulating the standards, stop writing new home insurance policies, market. And all of this is underpinned by the chronic or withdraw from the state. Insurers cited a number risk and severity of wildfires – accelerated by climate of reasons for pulling back from the state – increased change and fueled by land use decisions as well construction costs, higher reinsurance prices, and as years of policies that favored fire suppression outdated state regulations – though the growing over adaptation, as the Commission addressed risk of catastrophic fire appears at the forefront of in its 2017 report, Fire on the Mountain: Rethinking considerations about California’s home insurance Forest Management in the Sierra Nevada. Since market.2 2017, California has experienced 13 of the 20 most destructive wildfires in the state’s history, collectively This contraction has left tens of thousands of resulting in the destruction of more than 3.8 million California homeowners across the state scrambling acres and 40,000 structures.4 to secure affordable and adequate coverage. Californians living in areas at high risk of wildfires With this review, the Commission sought to examine are particularly vulnerable to losing their coverage, the current conditions of the state’s home insurance but homeowners across the state are also feeling market and assess the problems and potential the pinch. Indeed, a recent poll by the Public Policy solutions for Californians struggling to protect their Institute of California found that more than half of most valuable possession – their home. homeowners across the state are very concerned about high home insurance costs due to climate- related risks. These concerns are greatest among older and low-income homeowners.3 Facing limited options, many homeowners are forced to purchase more expensive or less comprehensive policies. Unable to find affordable options, some are even choosing to self-insure and take on the risk of protecting their home without insurance. 6 | LITTLE HOOVER COMMISSION A Missing Voice As is typical of Commission studies, in pursuing research for this study, the Commission benefited from extensive input about California’s home insurance market from homeowners, consumer advocates, insurers, state and local fire officials and emergency responders, policy experts, researchers, local elected officials, and former California Insurance Commissioners. The Commission convened two full-day public hearings, a roundtable discussion among nearly a dozen experts, and Commission staff received valuable feedback from more than 50 knowledgeable individuals. Unfortunately, unlike other studies, the Commission has been unable to secure testimony or background information from either the Insurance Commissioner or Department of Insurance staff over the course of its nearly year-long examination. Following six attempts to engage Department leadership, as well as follow-up communications, the Commission Chair in June took the unprecedented step of writing directly to the Insurance Commissioner to detail previous attempts and to reiterate the Commission’s request for his participation in this study. A copy of this letter is included as Appendix A. Nearly two months later, the Chief Deputy Commissioner wrote to Commission staff to offer a private, in-person meeting to discuss the Sustainable Insurance Strategy on one of two dates at the end of July. Unable to participate in person, Commission staff agreed to meet remotely at the time of the Department’s choosing and stated the meeting would be recorded to ensure all parties had a precise record of what was said. Two days prior to the agreed upon meeting date, the Chief Deputy Commissioner canceled the meeting, citing both a colleague’s illness and his objection to a recorded meeting, and stated he would share “dates and times in the days ahead” for a rescheduled meeting. Despite another offer by Commission staff to accommodate a meeting on a date and time of the Department’s choosing, the Commission received no further communication from the Department. When California voters in 1988 elevated the State Insurance Commissioner from an appointed to an elected position and broadened authority for this position to review and approve rate changes for various types of insurance before they could take effect, they did so to establish more accountable leadership over the state’s insurance industry.5 As California’s top regulator for the insurance industry, input from the Insurance Commissioner would have been helpful both to fulfill the Commission’s statutory charge to foster “efficiency, economy, and improved service” in state government6 and to the Commission’s ultimate assessment of the state’s home insurance market. It is disheartening that all Commission attempts to secure participation were ultimately rebuffed and the voice of the Insurance Commissioner is missing from this independent, nonpartisan review. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 7 Background: The State of California’s Home Insurance Market Regulating Home Insurance California’s Department of Insurance, led by the who are uninsured and under-insured, and insurance elected Insurance Commissioner, is responsible for affordability in the face of climate change.11 The regulating the insurance industry and protecting Insurance Commissioner has started to release draft consumers. Today, the Insurance Commissioner regulations to implement these reforms, though oversees a robust staff of nearly 1,400 employees as of this publication, it continues to be a work in and $409 billion in annual premiums.7 The current progress.12 Commissioner, Ricardo Lara, has held the position What Home Insurance Policies since 2018. Typically Cover and Where California largely has left underwriting — or decisions Californians May Obtain Them on whether to write or renew individual policies — to insurers.8 However, insurers must seek Department Californians are not required by law to purchase approval before raising or lower the rates they homeowners insurance,13 however, most lenders charge for insurance products.9 require coverage in order to secure a mortgage loan. California’s insurance regulations are unique Standard home insurance policies typically offer in several other ways. State law enables public protection against structural damage and loss of involvement in the rate approval process through personal property, as well as liability protection.14 “intervenors,” who are allowed to challenge proposed However, most standard policies do not include personal line rate changes exceeding seven percent. earthquake and flood coverage. To acquire such Insurers must pay intervenors’ costs, expenses, coverage, homeowners must go through the and attorneys’ fees — which they can pass onto California Earthquake Authority15 and the National consumers. State law also limits the types of costs Flood Insurance Program managed by the Federal allowed in rate applications. Emergency Management Agency, respectively.16 In recent years, top state leaders, including the California homeowners may purchase home Governor and Insurance Commissioner, have called insurance policies through three types of insurers: for major reforms to stabilize California’s insurance admitted insurers in the voluntary market, non- market. In September of 2023, after a failed attempt admitted in the surplus market, and the California to secure reforms through legislation, Governor Fair Access to Insurance Requirements (FAIR) Plan. Newsom issued an Executive Order calling on the ADMITTED INSURERS Insurance Commissioner to “take prompt regulatory action” to strengthen and stabilize California’s In 2022 – the most recent year for which data is insurance market.10 At the same time, the Insurance available from the Department of Insurance – nearly Commissioner unveiled the Sustainable Insurance 97 percent of homeowners insurance policies in Strategy as a series of reforms to safeguard the California were written by an “admitted” carrier.17 health of the state’s insurance market and address These policies generally include comprehensive some of the larger insurance-related challenges coverage to protect against most perils, as detailed facing the state, such as the widening share of those above. 8 | LITTLE HOOVER COMMISSION Currently, 102 admitted insurance companies — Currently, 141 non-admitted insurance companies, like State Farm, CSAA, Allstate, Farmers, as well like Lloyds of London or Berkshire Hathaway, as smaller carriers — are licensed to write home are included on the list of approved surplus lines insurance policies in the state and must receive companies26 and approximately 9,000 surplus approval for rate changes from the State Insurance line brokers are licensed to assist Californians in Commissioner.18 If for some reason these companies obtaining these policies.27 According to the Surplus fail, California will step in to pay out these claims.19 Line Association of California, the overwhelming majority of policies written by surplus non-admitted Homeowners who have difficulty finding coverage insurers are for commercial business, rather than in the admitted market may look for alternative individual homeowners.28 coverage in the surplus market or the California FAIR Plan. CALIFORNIA FAIR PLAN Californians unable to find or afford insurance NON-ADMITTED INSURERS elsewhere may turn to the state’s safety net insurer Less than one percent of California homeowners of last resort, the California Fair Access to Insurance obtained coverage from a “non-admitted” or “surplus” Requirements Plan (FAIR Plan). The FAIR Plan has insurer in 2022 – reflecting a consistent share of the grown rapidly in recent years, from 140,000 policies market going back to at least 2015.20 These policies in 2018 to more than 400,000 policies in June generally cover riskier or unconventional dwellings 2024.29 It is also making up a growing share of home and, in turn, are typically more expensive than those insurance policies. Approximately three percent of from admitted insurers.21 homeowners secured a FAIR Plan policy in 2022 – nearly double the percentage in 2015.30 All non-admitted insurers are based outside of California and thus are regulated by their home To satisfy the typical requirements of mortgage state or country. However, most choose to undergo lenders, FAIR Plan policies provide basic, “bare bones” additional scrutiny to get on a list of California- coverage of property damage due to fire, lightning, approved surplus line insurers.22 To make the list, smoke, or internal explosions. Homeowners may a company must demonstrate established financial buy additional coverage for more comprehensive stability, reputation, and integrity; be licensed protection, but only half of FAIR Plan policyholders elsewhere to issue insurance policies; and maintain choose to do so. This leaves the remaining half likely a minimum capital and surplus of $45 million woefully unprepared should a disaster strike.31 at all times.23 While surplus line policies are not guaranteed if a company fails, this capital reserve The FAIR Plan, which operates as a not-for-profit, requirement is intended to help protect consumers non-voluntary private association, was created by of these insurance products.24 state law in 1968.32 It is funded primarily through the policies it sells and is jointly backed by all carriers in Further, state law establishes licensing requirements the admitted market. Each member company shares for the brokers who sell these policies, including the in the profits, losses, and expenses of the FAIR Plan conditions under which a policy may be placed by a in proportion to its market share of business written non-admitted insurer (such as lack of availability in in California. Because the FAIR Plan covers a greater the admitted market).25 concentration of high-risk properties, these policies are typically – but not always – more expensive than traditional plans.33 BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 9 For many years, growth in the Plan was largely Californians Face Rising Home concentrated in more rural, fire-prone parts of the Insurance Costs, But Pay Less state. As of 2022, FAIR plan policies accounted for Compared to Many Other States over one-fifth of home insurance policies in eight fire-prone counties. By comparison, in 2018, the FAIR Problems apparent in today’s home insurance Plan accounted for no more than five percent of market, particularly those stemming from the policies in any county.34 However, perhaps signaling growing frequency and severity of climate-related greater instability in the state’s home insurance disasters, have been years in making. These issues market, recent growth has been outside of wildfire only worsened in 2017 and 2018 when the state areas. Since September 2023, 40 percent of new experienced two back-to-back years of devastatingly business has come from no- or low-fire hazard areas, destructive wildfires. Prior to 2017, home insurance according to FAIR Plan President Victoria Roach.35 premiums in California rose steadily, though at a FORGOING HOME INSURANCE particularly low rate – in several years increasing by just one percent. However, this changed in 2017, An unknown number of Californians are “going bare,” at which point, Californians began to see dramatic meaning they opted out of home insurance entirely. increases in their insurance costs. In comparison, The Commission heard from a number of county home insurance premiums nationally have risen officials that residents in their communities are more steadily. Prior to 2017, the national rate of struggling with home insurance, and an increasing increase was faster than in California; since 2018, number are making the difficult decision to forgo rates across the United States have risen more slowly home insurance. Only individuals who own their than in California. The net result is that in 2021, homes outright may opt to go without insurance average home insurance premiums in California and personally take on the entire financial risk ($1,403) and the country ($1,411) were roughly of protecting their home against ruin. According on par.37 to a recent national study, about 7.4 percent of all U.S. homeowners are uninsured. Low-income Still, California’s home insurance costs are low households, such as those headed by older relative to the state’s high housing costs.38 California Americans on fixed incomes, homeowners of color, premiums are particularly low in comparison to other owners of manufactured homes, and owners in rural states that are highly susceptible to climate-driven areas, are more likely to be uninsured. Nationally, disasters. For example, in 2021, homeowners paid this equates to an estimated $1.6 trillion in property on average $2,437 in Florida, $2,259 in Louisiana, value of uninsured homes.36 It is unknown how many and $2,146 in Texas.39 Some analysis suggests that in homeowners in California make this decision, but this recent years, insurance premiums have increased at figure certainly is one that would help policymakers a much faster rate in these states than in California better understand the health of California’s home — further widening this gap.40 insurance market. According to a recent national study, about 7.4 percent of all U.S. homeowners are uninsured. 10 | LITTLE HOOVER COMMISSION California Home Insurance Premiums Close to National Average in 2021 Year-over-year changes (%) in the average annual insurance premiums in California and the United States CALIFORNIA UNITED STATES Source: Insurance Information Institute. Average Premiums for Homeowners and Renters Insurance by State. https://www.iii.org/table-archive/21407. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 11 Non-renewal Rates in California’s Voluntary Home Insurance Market Non-renewed/cancelled home insurance policies as a share of new and renewed policies (2015 to 2022) 14% 12.9% 12.1% 12% 10.8% 10.9% 10.8% 10.7% 11.1% 10.6% 10% 11.8% 11.7% 10.5% 10.2% 10.3% 10.3% 10.4% 10.2% 8% 6% 4% 2% 0% 2015 2016 2017 2018 2019 2020 2021 2022 Statewide High Fire Risk Counties Note: “High Fire Risk Counties” are defined as counties where 20 percent or more of homes are at high fire risk, including: Tuolumne, Trinity, Nevada, Mariposa, Plumas, Alpine, Calaveras, Sierra, Amador, El Dorado, Mono, Lake, Mendocino, Siskiyou, Butte, Lassen, Shasta, Tehama, Santa Cruz, Humboldt, Napa, Del Norte, Modoc, Placer, Monterey, Marin, San Luis Obispo, and Ventura. Source: California Department of Insurance. Fact Sheet: Summary on Residential Insurance Policies and the FAIR Plan. Pages 6 and 9. https://www. insurance.ca.gov/01-consumers/200-wrr/upload/CDI-Fact-Sheet-Summary-on-Residential-Insurance-Policies-and-the-FAIR-Plan.pdf. The rate at which California homeowners lose their The state does not gather information on the reasons insurance coverage has varied, especially in fire- why homeowners lose or drop their insurance. prone areas. The statewide non-renewal rate in the However, throughout its study the Commission admitted market – the portion of the market used heard stories about homeowners feeling helpless by the vast majority of homeowners – held steady and frustrated by rising premiums and difficulties from 2015 through 2018, then increased in 2019 and maintaining or finding coverage. 2021 before dropping in 2022, the most recent year Insurers Contend with Growing for which data is available. In areas most prone to Risks and Rising Costs fire damage, the non-renewal rate follows a similar pattern, though with a starker and more sustained Insurers attribute the increasingly constrained home increase in recent years. For example, in counties insurance market to high inflation, rising construction where at least 20 percent of dwellings are at high fire and reinsurance costs, and devastating losses from risk, the non-renewal rate in the admitted market wildfires. Meanwhile, they contend California’s held steady through 2018, jumped significantly insurance regulatory regime has kept insurance rates the next three years, and then dropped in 2022. artificially low and limited their ability to accurately (Roughly 80 percent of non-renewals are initiated reflect risk.42 Insurers say these factors, taken by the customer, a share that has not changed together, have contributed to decisions to cut back dramatically in recent years.) Regardless of these writing policies across the state. Since 2022, seven of variations, the net impact of non-renewals has been the top 12 insurers – responsible for writing policies to push far more Californians into the FAIR Plan, as to cover 85 percent of the state’s homeowners noted elsewhere in this report. This increase in FAIR market – have paused or restricted new business.43 Plan policies holds challenges for homeowners and This market retraction has left some homeowners policymakers alike.41 scrambling to find insurers willing to cover their home. 12 | LITTLE HOOVER COMMISSION Some consumer groups, on the other hand, take WILDFIRES UNDERCUT PROFITABILITY issue with insurers’ claims that the business is not Historically, California’s home insurance market profitable in California, particularly when looking was stable and profitable, yet insurers suggest that at long-term profitability trends and accounting for it has entered an era of volatility, with periods of investment income as well as underwriting profits extreme losses followed by years of high profits. and losses. Data from the National Association of Insurance Commissioners, compiled by Risk Information Inc., Consumer Watchdog, for example, told show that insurers earned a 16.2 percent profit from Commissioners that over the last two decades, home writing home insurance in California in 2022, making insurers have fared as well or better in California home insurance lines more profitable in California than across the nation. Executive Director Carmen than in 36 other states in that year. Balber told Commissioners that insurers’ return on net worth – what they’re spending and taking in as But, over the last decade, insurers averaged a 2.6 well as earning through investments – was two and a percent loss in the state,45 making home insurance half points higher over the last 20 years in California less profitable in California than in most other states. than the national average. “The narrative that the Only seven states suffered greater losses.46 insurance industry is going broke in California because of the specifics of our State and our regulatory system…is misinformation,” she said.44 Home Insurance Insurance Profit Margins Total profit as a percentage of direct premiums earned for homeowners multiperil policies (2013 to 2022) 60% 40% U.S. 10-Year Average: 6.7% 20% 0% CA 10-Year Average: -2.6% -20% -40% -60% -80% -100% 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 California United States Source: Risk Information Inc. April 8, 2024. Property Insurance Report. Vol. 30#21/717. Homeowners Multiperil Profit Margins. Pages 4 and 5. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 13 The extreme losses in California were largely driven The FAIR Plan estimates there are several by two particularly devastating fire seasons in areas within its portfolio characterized by high 2017 and 2018, which resulted in combined losses concentrations of wildfire risk, which pose significant of $20 billion. According to analysis from the financial risk to the insurers, and ultimately actuarial firm Milliman, these losses far exceeded consumers. “[We] are one event away from a the home insurance industry’s past 26 years of large assessment,” Victoria Roach told legislators underwriting profits – though the data used in their in March.54 The FAIR Plan’s largest concentration analysis excludes both the impact of reinsurance of wildfire risk is near Lake Arrowhead, with over and investment income.47 Still, like a “wake-up call” $8.4 billion in exposure. Other concerning areas for insurers, these fire seasons reset expectations identified include Crestline, in the San Bernardino regarding the damage wildfires could pose.48 In the Mountains, with $7.2 billion in exposure, Big Bear City aftermath, larger insurers recovered at least some of with $6.3 billion in exposure, and Truckee, with $4.1 these wildfire-related losses with returns made from billion in exposure.55 investments.49 But some smaller carriers, particularly those with policies concentrated in fire-prone areas of the state, experienced such great losses that their businesses folded. GROWING FAIR PLAN EXPOSURE COMPOUNDS RISKS FOR ADMITTED INSURERS Increased demand for the FAIR Plan has compounded risks for admitted insurers, which are on the hook should the FAIR Plan have insufficient resources to cover its losses.50 In the event of a disaster, admitted insurers will be assessed on a statewide market share-basis to make up the difference. This has only happened twice since the FAIR Plan was established in 1968. Both instances were related to the Northridge earthquake in the 1990s for a total of around $260 million.51 Today, the FAIR Plan’s total risk exposure exceeds its reserves. As of June 2024, the plan insured $393 billion worth of property across the state – almost eight times as much as it did in 2018.52 To cover this risk, the FAIR Plan holds about $700 million in cash and $200 million in surplus revenue from its annual policies. It also carries reinsurance to cover approximately $2.5 billion in losses, with a $900 million deductible for a single event.53 14 | LITTLE HOOVER COMMISSION Strategies to Stabilize California’s Home Insurance Market Move Forward With Catastrophe The Insurance Commissioner told lawmakers in May Modeling Regulations, But Take 2024 that insurers have reacted positively to the proposals, with some signaling they will end their Steps to Ensure Public Oversight pauses on new homeowners insurance policies and Recognition of Climate in California, once the new policy on catastrophic Mitigations modeling is fully implemented. Indeed, in testimony to the Commission, the President of the Personal California is the only state that prohibits insurers Insurance Federation of California said that use from using forward-looking probabilistic models, of modern climate catastrophe models would or catastrophe models, to set their insurance help restore a healthy and competitive insurance rates.56 Instead, California regulations require market.60 Catastrophe modeling also would benefit admitted insurers and the FAIR Plan to estimate the FAIR Plan by allowing it to financially handle future losses using a 20-year average of historic projected losses.61 A representative from the losses.57 Calculating risk using historic data, rather Department of Insurance told lawmakers the draft than predictive modeling, precludes insurers from regulations would be updated based on input from quantifying the potential financial impact from a the public and modeling companies at an April range of disasters or predicting their severity and workshop, and Commissioner Lara reiterated past where they are likely to occur. It also prevents them promises that these regulations were on track for from reflecting in their rates housing growth in completion by December 2024.62 high-risk parts of the state, increased fuel load in years of drought, or other environmental impacts of To bring stability and predictability to the home climate change. Nor does it enable insurers’ rates to insurance market, California should move forward account for the full scope of California’s significant with developing regulations to allow insurers to use investments in forest treatments, or efforts of catastrophe models. Yet, more could – and should – communities and individual homeowners to fortify be done to ensure transparency of the rate setting their neighborhoods and properties, when assessing process under these new models and to account and pricing risk. for California’s significant investments in climate mitigations in the insurance market. In March 2024, Insurance Commissioner Ricardo Lara proposed new regulations to allow insurers to use ENSURE PUBLIC OVERSIGHT OF catastrophe modeling in rate making if they agree to PROPRIETARY CATASTROPHIC MODELS write and maintain more residential and commercial In a press release announcing his proposal to move policies in wildfire distressed areas of California.58 forward with catastrophic modeling regulations, the Catastrophic models are computerized processes Insurance Commissioner said that his reforms would that simulate thousands of plausible catastrophic “[restore] options for consumers while safeguarding event scenarios based on parameters using the independent, transparent review of rate filings meteorological, historical, geological, and geographic by Department of Insurance experts.” He further data to predict possible future damages.59 promised the Department would have “strong public oversight of modeling” and would “have access to models and build expertise” so it could continue to provide consumer protection. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 15 The press release described a new, public process Some consumer advocates say that, as written, to review each model, in which a panel of experts, these reforms fall short of ensuring independent, overseen by the Department, would evaluate the transparent oversight of the ways insurers will appropriateness and soundness of each model use the models to assess and price risk. Without and a Department official would determine what amendments, they also could perpetuate the information must be included in rate applications.63 use of “black box” models that remain out of public sight when determining how much people However, the draft regulations do not clearly reflect pay for insurance. Advocates such as Consumer these promises. Watchdog point out that if the goal is to ensure that transparency and oversight are built into catastrophe Specifically, the draft includes three phases modeling, the proposed regulation falls short. for oversight: first, a confidential review by the Instead, they suggest the proposal:66 Department to ensure all information and data regarding a model are submitted; second, a review ◊ Designs a process to keep model information by the Department to determine if a rate application private. is complete; and finally, a final public rate review.64 ◊ Fails to set uniform standards or require wildfire The Department explained that following its public models to be proven reliable, predictable, and workshops it heard that Department staff, rather unbiased. than an administrative law judge or panel of experts, would be a better fit for oversight, and stated that ◊ Does not require review or approval of models, the Department could hire outside subject matter but instead establishes a process to determine experts in a consultative role. It further explained what information will be disclosed. that “such an approach more directly aligns ◊ Fails to include guidelines for minimum with the rate-review and rate-making role of the information to be made public. Insurance Commissioner” and “ensures that the ◊ Discourages public participation and independent proposed rulemaking does not overstep statutory review. boundaries.”65 ◊ Established a voluntary process, exempting models currently in use for up to four years. “The surplus line industry’s Some point to a Florida commission as an example of purpose is not to supplant how California might better provide public oversight the admitted market. Rather of the models insurers use to determine risk and set rates. In 1995, Florida’s Legislature established it exists to provide additional the Commission on Hurricane Loss Projection options to consumers who Methodology, an independent panel of experts to set cannot obtain the coverage they actuarially sophisticated guidelines and standards to project hurricane and flood losses. The commission need from admitted carriers.” also reviews and approves all hurricane and flood Benjamin McKay, Surplus Line loss projection models used by home insurers in Florida.67 By law, the commission must review and Association of California216 revise this work – along with the actuarial models used by insurers – every two years for hurricanes 16 | LITTLE HOOVER COMMISSION and every four years for floods.68 In its nearly three To balance the need for public oversight and decades of operations, the Florida commission transparency in the rate setting process with the has developed an extensive set of standards and need to protect proprietary information of insurers, required disclosures with which modeling companies California, too, should establish an independent must comply.69 oversight body to review the proprietary models used by insurers to set rates. To ensure independence, Because of the technical nature of the work, most lawmakers should specify that membership of such commission members must have professional a body include insurance consumer advocates, state expertise in one of a number of specific fields, public officials, and academic and scientific experts including insurance finance, actuarial science, in fields such as meteorology, environmental science, structural engineering, meteorology, computer finance, statistics, actuarial science, and engineering. science design. Other Commission members Lawmakers may want to also consider introducing, serve as consumer advocates or representatives like Florida, trade secret protections, requiring such from the state’s Office of Insurance Regulation, a body to review and approve standards for all perils Division of Emergency Management, and Citizens on the same two-year cycle as a way to encourage Property Insurance Corporation – Florida’s FAIR Plan that the most up-to-date science is incorporated, and, equivalent.70 to the extent possible, consulting with colleagues in other states to align around model standards. To encourage private modeling companies to submit their models to the Florida commission for review, CLARIFY HOW INSURERS WILL ACCOUNT lawmakers added statutory exemptions in 2005 FOR MITIGATIONS IN RATE SETTING to free commissioners from complying with public A number of county leaders shared with the meeting laws when discussing trade secrets and Commission examples of how the home to enable commission members to conduct their insurance market is hurting their constituents and on-site audits without concerns of publicly divulging communities, particularly because their investments proprietary information.71 in mitigations are not being recognized. They shared experiences investing time and money to Leaders from the Florida commission shared that protect homes, install fire breaks, plan evacuation creating a similar body in California could be useful, routes, and take many other steps to fortify their particularly in providing homeowners confidence communities against fire damage. But they have yet that the information used to set their rates has been to see the benefit of these investments reflected in reviewed and approved by independent experts. their insurance rates.73 However, they noted that should California proceed, it would benefit from building on their work rather “My number one request is that we really lean on than starting from scratch. They also cautioned that the insurance companies to recognize those of us modelers – who serve insurers nationally – might be and those communities and those governments who more amenable to working with such a commission have been doing the risk reduction work for years if its standards aligned with what already is in place now, and to do something to help us with those rather than having to build separate products rates,” Nevada County Supervisor Heidi Hall told the that comply with vastly different standards across Commission.74 states.72 BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 17 The Insurance Commissioner’s Sustainable Insurance and pricing. Insurers can use data already developed Strategy includes provisions to require that insurers by the California Wildfire & Forest Resilience Task incorporate information on risk mitigations into the Force, which was created by Governor Newsom to catastrophic models used to set rates.75 As with other address forest management. Specifically, she said reforms included in this strategy, the Commissioner the task force’s California Wildfire & Landscape has promised these will be completed – but does not Resilience Interagency Treatment Dashboard79 expect they will be in effect – by the end of the year.76 tracks the billions of dollars government agencies and private landowners are investing in hazardous The draft text of the proposed regulations makes fuels reduction. Because this dashboard includes clear that this reform is intended to help ensure data on the type, year, footprint, and entity leading that the substantial amount of work that has been treatment, she said it could be incorporated into done – and will be done in the future – by individual insurance models as a way to account for wildfire homeowners, communities, and the state is mitigation.80 accounted for in home insurance pricing. However, Representatives from The Nature Conservancy and Former California Insurance Commissioner Dave UC Berkeley Center for Law, Energy, & Environment Jones agreed that insurers’ underwriting models said it is not clear exactly how the regulations define should account for forest treatment, but told certain mitigation activities and suggested that Commissioners, “Don’t stop there.” He explained including more specificity would be helpful to ensure “the insurance industry has done some terrific work that California’s investments are accounted for in demonstrating that home hardening and defensible insurance pricing.77 space dramatically reduces the risk of loss, too. So, I believe the Legislature should require that the REQUIRE INSURERS TO ACCOUNT FOR underwriting models…account for forest treatment MITIGATIONS IN UNDERWRITING as well as home hardening and defensible space.”81 While the Department of Insurance is responsible for regulating insurers’ home insurance rates,78 it Incorporating these mitigations into underwriting does not have this same authority over underwriting could highlight the benefit of making personal decisions – how an insurer evaluates a home’s investments in home hardening and community risk to consider whether it will write or renew a investments in forest treatment – work that former homeowners’ policy and how much that policy will Commissioner Jones said the state will need to cost. Instead, these decisions are largely left to the encourage and support as a way to address climate discretion of the insurance industry. change over the long-run. Recently, lawmakers considered, but failed to pass, a bill that would have Yet, the Commission heard from some stakeholders allowed, but not required, insurers to account for that California needs a way to ensure that the wildfire risk reduction in underwriting risk models.82 billions of dollars it has spent on forest treatment, Encouraging incorporation of mitigation in models is along with the significant investments made by not sufficient to ensure that Californians’ investments individual homeowners, neighborhoods, and local are considered by insurers. Going forward, the governments to reduce fire risk, are accounted for in Legislature should task the Department of Insurance the underwriting models insurers use. with developing new regulations that require underwriting models used by insurers account for Sarah Heard with The Nature Conservancy told mitigations taken by homeowners, communities, and Commissioners that the state should require wildfire the state to reduce the risk of fire. mitigation in insurance models used for underwriting 18 | LITTLE HOOVER COMMISSION Recommendation 1: The Department of Insurance “While catastrophic models should expedite development of regulations to allow make sense in this age of insurers to use forward-looking probabilistic models when setting rates for home insurance policies and climate change, we really need, ensure they provide clear guidance for how these as a public, more insight into models will account for various mitigations at the how those models are being property, community, and landscape scales. used and the underwriting ◊ To enable public oversight of these proprietary models, the Department should create an process in general,” Anne independent panel of experts to establish Cottrell, Napa County standards for the design and use of catastrophic Supervisor86 models, and to represent the public in evaluating and approving catastrophe models for use in California. In California, insurers use reinsurance to spread the Recommendation 2: Lawmakers should ensure risk of property destruction from wildfires around California’s various efforts at climate mitigation the globe. But they say rising reinsurance costs and are reflected in insurers underwriting decisions by their inability to account for that expense in their requiring insurers to account for parcel-, community- rates is creating significant financial pressures, and landscape-level mitigation in underwriting making it harder to maintain their claims paying models. capacity or to take on more policies in the state.87 They suggest California’s current regulations create Allow Insurers to Account for pricing restrictions that limit their capacity to insure Reinsurance Costs in Rate homes and serve as a deterrent for other insurers Setting to enter the California market.88 In testimony to the Commission, Personal Insurance Federation Insurers that write policies in California are barred of California President Rex Frazier noted that state from including the cost of reinsurance into their rate rules allow the California Earthquake Authority making processes for homeowners insurance.83 Few to incorporate reinsurance costs into their rates other states restrict insurers from including these and said this “unequal treatment for homeowners costs in their rates.84 Reinsurance, also known as insurers does not make sense, creates a mismatch “insurance for insurance companies,” is a contract between actual costs and permitted rates, and between two insurers, where the “reinsurer” agrees contributes greatly to the current market crisis.”89 to cover certain losses from the primary insurer for an agreed upon price. Insurers use reinsurance as Like admitted insurers, the FAIR Plan also is barred a risk and capital management tool, enabling them from reflecting reinsurance costs in its rates. As a to limit liability on a specific risk or cover their risk result, the FAIR Plan is never able to conform to portfolio.85 state law90 requiring that its rates be “actuarially sound,” FAIR Plan President Victoria Roach told the Legislature earlier this year.91 She later told the Commission that being able to incorporate reinsurance costs into rates is her top priority for reform.92 BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 19 In unveiling the Department of Insurance’s Recommendation 3: The Department of Insurance Sustainable Insurance Strategy, Insurance should expedite the development of regulations Commissioner Ricardo Lara suggested he would to allow insurers to incorporate the net cost of hold public meetings to explore incorporating California reinsurance when setting rates. California-only net reinsurance costs into rate filings, Improve Accessibility and so that insurers do not pass on the costs of disasters occurring in other states to California homeowners Timeliness of Insurance when setting rates.93 Nearly a year later, in June 2024 Information he announced the Department’s plans to introduce regulation text in July 2024 to implement this Answering basic questions about the state of reform.94 He had previously noted in testimony to California’s home insurance market is more difficult the Assembly Insurance Committee that making this than it ought to be. As a regulatory agency, the change “requires actuarial formulas that we currently Department of Insurance collects ample information don’t have anyone in the Department that can draft,” from insurers as well as individual brokers and and said they were hiring an actuarial expert to do agents. However, it is not easy for homeowners, the work.95 To date, this language is pending. policymakers, researchers, or other interested parties to access this important data. This failure to provide Consumer advocates remain concerned that transparent information about the basic aspects of a change to the state’s regulations regarding the homeowners insurance market seemingly creates reinsurance will ultimately result in homeowners an imbalance of power where insurers are rich with paying more to protect their homes. “We appreciate information about the market while the public is left the [Department of Insurance’s] commitment to in the dark. limit the reinsurance pass-through to California-only reinsurance costs and tie the allowance to a firm Through the course of this study, the Commission commitment from insurers to take customers out found that some important data appears to be of the FAIR Plan and write more policies in [wildland unavailable from the Department’s website. For urban interface] areas,” Amy Bach, Executive Director example, it is unclear how much information the of United Policyholders, told Commissioners, “But we Department collects regarding FAIR Plan and sincerely hope the market opens back up before that surplus line policies, including non-renewals and change can be implemented.”96 cancellations, or the premiums Californians pay for these policies. Understanding how California To ensure homeowners have options when shopping homeowners are using these markets – and what for insurance, California must act to bring insurers they pay in comparison to similar properties insured back into the market and give them the confidence by admitted carriers – could help signal important that they will be able to maintain and sustain changes in the market.98 their business in the state. Because the global reinsurance market is unregulated, allowing insurers to incorporate portions of these costs going forward will require some thoughtful guidance to ensure rates are neither excessive nor inadequate.97 The Department of Insurance must act swiftly to finalize and begin implementing these regulations. Any delays will continue to leave too many homeowners with few options to secure their home. 20 | LITTLE HOOVER COMMISSION Some data about the Department’s performance The Commission also found that the Department’s regulating home insurance policies is available but website is unnecessarily difficult to navigate. Users is difficult to access or incomplete. For example, may be frustrated when revisiting previously the Department provides statewide average accessed pages or PDFs, only to be blocked by a written premiums. Average annual premiums by screen prompting them to log-in. Those seeking city or county are searchable on the Department’s to find more information about their insurance Homeowners Insurance Comparison Tool. However, options may also be discouraged by the out-of-date it requires users to compare a location’s premium information available. For example, the Department’s costs by a home’s age, amount of coverage, and Home Insurance Finder is advertised as a tool to each individual insurance company. There is not help individuals locate nearby insurers and their an option to compare broadly by location or across appointed agents or brokers. However, as one locations, which could be helpful to policymakers or analysis found, around 70 percent of those listed are local leaders who need to better understand market not currently offering plans.101 conditions in their region.99 The Department also Instead of turning to the Department to find reports the incurred losses and loss ratio for the top information about California’s home insurance 25 insurers in the state by year, but this information market, some stakeholders look to an annual is not available for all insurers who write policies in report produced by the National Association of the state.100 Incomplete information makes it difficult Insurance Commissioners (NAIC) about the national to track insurer profitability overtime, particularly for homeowners insurance market to find information smaller insurers whose participation in the market is on California’s market. This report is rich in national critical for giving homeowners insurance options. and state-specific premium and exposure data and Further, some basic data on the home insurance provides a detailed source of information for those market is locked away in various PDF documents interested in better understanding California’s home and reports or available in Excel spreadsheets insurance market. However, the data included buried within the Department’s website. Interested in the report is not up to date – in January 2024, parties must first know where on the website to the NAIC released a report of 2021 data – and it is look for data, and then, many times, manually published in a PDF format, which makes it difficult transpose figures in order to analyze facts. Other to draw insights.102 The two-year publishing delay is information is only accessible in annual reports and understandable given the time it takes for insurance is not consistently reported from year to year. For companies to collect and report year-end profitability instance, a 2021 report on policy count data includes data, and for the NAIC to compile and organize this information on the initiator of non-renewals/ information across states, for example. However, cancellations, but the 2022 update does not include given that the Department of Insurance directly similar data. Together, these challenges can make it reports California’s data to the NAIC, it should be difficult for outside parties to understand the home fairly easy to also share that annual information insurance market and assess trends. directly with the public on a real-time basis and in formats that can be downloaded and analyzed. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 21 The Department of Insurance must do a better job ◊ Profitability data: written premium, earned providing accessible, up-to-date information on premium, loss incurred, market share, loss ratio, California’s home insurance market, in all years, by insurer, by year.106 but particularly in these years of crisis. Doing ◊ CDI performance data: number of filings made by so will require an update to the Department’s year, by insurer, and amount requested; status website to be more user-friendly and to provide of each filing (in process/denied/accepted) by access to downloadable indicators. It also will processing time in number of days; number and require a commitment to timely and relevant data. length of interventions.107 Such information would likely help homeowners, consumer advocates, and researchers, as well as Align Information and policymakers who are called on with regularity to Requirements Around make difficult decisions to regulate the market. Mitigating Fire Risks and Recommendation 4: The Department of Insurance Maintaining Insurability should modernize its website to make it more user- Homeowners want to know that if they invest friendly and accessible for homeowners, insurance money and time to make their home fire safe, their agents, policymakers, researchers, and others. efforts will result in enhanced protections to their This update should include regularly posting data property and will help them secure or maintain home about the state of the home insurance market and insurance. But right now, too many are confused key indicators of the Department’s performance about what is required to protect their home. To regulating that market in an easily accessible, complicate matters, the work that their neighbors searchable, and downloadable spreadsheet format, and community members do to mitigate fire risks including: also impacts their insurability. ◊ Overall home insurance market data: the number Californians need consistent, reliable, science-backed of homeowners policies by type of insurer type information about how to protect their homes and (admitted, surplus, FAIR Plan); total written communities. Currently, the state lacks a defined premium, total written exposure, and average set of fire safe minimum standards around which written premium by year and county; the number all stakeholders – homeowners, insurers, local of new and renewed home insurance policies by community leaders, and fire officials – can align. year, type of insurer, and county.103 This includes both standardized guidelines to help ◊ Admitted market data: the number companies homeowners take action to protect their properties, writing homeowner policies by year and as well as guidelines for communities at large to market share; the number of non-renewals and minimize risk. Having such standardized guidance – if cancellations by year, county, and initiator.104 developed in consultation with insurers – could help ◊ FAIR Plan data: the number of non-renewals and ensure that action homeowners and communities cancellations by year, county, and initiator; the take to minimize risk is reflected in insurers number of difference in condition policies, by underwriting and rate calculations. year.105 ◊ Non-admitted market data: the total number of California-licensed surplus line brokers by year; the total number of approved surplus line insurers by year and home jurisdiction. 22 | LITTLE HOOVER COMMISSION INCONSISTENT ADVICE ABOUT ACTIONS homeowners who invest in select mitigations to NEEDED TO MITIGATE A HOME’S FIRE RISKS become discouraged if they do not receive significant insurance discounts, or worse, are denied coverage. Homeowners have access to a variety of resources and guidance about how to protect a property Experts told the Commission that in some cases from fire. However, this information comes there also is misalignment between fire safe from multiple sources and, at times, provides requirements – particularly in areas of high fire inconsistent recommendations about the mitigations risks – and guidelines for homeowners. For example, homeowners should take and how they may benefit. fire experts told the Commission that there’s a These guidelines are not always actionable for “significant gap” between state laws109 that require individual homeowners. Depending on the source, homeowners in high fire hazard severity zones recommendations may call for improvements to take certain measures to minimize fire risks that come with high price tags or involve manual and the fire safe standards that are called for by labor. Further, recommendations may not align both the IBHS Wildfire Prepared Home and the with science-backed evidence of what is required Department’s Safer from Wildfires initiative.110 But to protect a home or with what individual insurers some argue that consistent directions and messaging require of homeowners in order to write or renew is essential in meeting are shared goals. “What policies. [if] the exact same things on the fire inspections were the exact same things on the renewal for the To illustrate this challenge, the Commission property insurance?,” Frank Frievalt, Director of the reviewed guidelines from five prominent sources Cal Poly Wildland-Urban Interface Fire Institute, — including state government and consumer posed to Commissioners. “I mean, these shouldn’t be advocacy organizations — and found that California remarkably different things if we both want the same homeowners are advised to take anywhere from outcome, which is no loss of life and property loss to eight to 33 different steps to protect their home the peril of wildfire.”111 and surrounding properties. Some recommended steps overlap across lists, others are unique. Details The Commission also noted that without consistent of these mitigation guidelines are included as guidelines and standards, some owners who want Appendix B. to reduce their home’s fire risk may also face obstacles in the form of outdated local ordinances Part of the problem may be that with so many or homeowners association rules. For example, recommendations, homeowners do not understand restrictions about the appearance of a home’s whether they can pick and choose which mitigations exterior and public-facing landscaping may impede to complete or whether it is best to do them all. a homeowner’s ability to comply with fire safe For example, recent regulations adopted by the guidelines about defensible space. Lawmakers in Department of Insurance would require insurers to Colorado recently enacted statutory protections to offer homeowners a discount for completing any one ensure that homeowners who wish to use certain of 10 different mitigations. By contrast, insurance fire-hardened building materials to fortify their industry guidelines – which may be used in assessing property against fires do not have to overcome a property’s level of risk and insurability – require additional hurdles from homeowners associations to homeowners to complete an entire package of do so.112 mitigations. “It’s not a menu,” an IBHS representative told the Commission, “[Homeowners] have to do them all.”108 This disconnect may lead some BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 23 Homeowners need to know what is required to In recent years, California has invested millions protect their property from fire, what is effective, in landscape-level work to improve the health of and what is enough. Without clarification, some the state’s forestlands.114 These projects support homeowners may assume incorrectly that any action prescribed burns, fuels reduction, fire prevention they take matters equally in improving their home’s education, defensible space inspections, and other fire safety or insurability and that they can pick and similar efforts. The state has committed $1 billion choose among the various steps to effectively protect over five years to replant after fires and restore their home. forests to prevent future fires.115 As a state, we need to stop giving them conflicting At the same time, homeowners in hundreds of information. Achieving alignment will require communities across the state are doing their part focused leadership from the state to identify and to band together to educate and support neighbors codify a fire safe minimum set of core, evidence- with home hardening improvements and create based mitigations for a range of stakeholders to rally defensible spaces around their communities. around – insurers, realtors, developers, fire officials, Organizations such as Firewise Communities and local governments, and community groups. State and Fire Safe Councils are helping facilitate these efforts local leaders should ease the path for homeowners to build fire adapted communities. Currently, the who wish to fortify their homes by reviewing and National Fire Protection Association has designated updating building codes, local ordinances and nearly 1,150 Firewise Communities in California.116 homeowner association rules to ensure that they Neighbors in these sites have voluntarily come reflect evidence-based fire safe standards. together to help educate homeowners about reducing their homes’ ignition risks and minimizing ABSENCE OF COMMUNITY STANDARDS FOR risk in public spaces. Approximately 300 communities MITIGATING FIRE RISK have established Fire Safe Councils, which similarly Successfully mitigating the risks of wildfire to a mobilize residents to protect their homes, but may home is complicated by the need to also address also seek grant funding and work with local fire these types of hazards at the community- and officials to support larger community-level mitigation landscape-levels. Currently, there is little guidance work.117 about how communities can take meaningful action together to protect against the risks of fire. Without This work is critically important to bringing mitigation this guidance, the Commission heard that some efforts to scale across the state. Yet today there is not homeowners are hesitant to invest in mitigation. a consistent framework for communities to organize Local leaders shared that the need for collective around, nor is it clear how insurance companies action on a larger scale is discouraging some consider these larger community- and landscape- individual homeowners from investing in mitigation. level mitigations in underwriting decisions. Contra Costa County Supervisor Diane Burgis told Commission staff, “You can do your whole part, but if your neighbor isn’t doing it, you can still be vulnerable.”113 24 | LITTLE HOOVER COMMISSION Experts told the Commission that having a Recommendation 6: Lawmakers should establish community vulnerability standard could significantly statutory protections against HOA rules or local help with insurance affordability,118 but noted that ordinances that restrict the use of fire-hardened developing such a standard is tricky because there’s building materials or other science-based mitigations no one-size-fits-all solution to build a fire adapted that homeowners wish to employ in order to fortify community. Michael O’Connell with the Irvine Ranch their properties against fire risks. Conservancy in Southern California noted that fire Recommendation 7: Lawmakers should task the treatment means something different in different Department of Insurance and CAL FIRE to form a parts of the state and explained that forested working group — including researchers, fire safety areas need to address fuels buildup while coastal engineers, and insurance experts — to define a areas must address fires spread by winds through fire safe minimum set of core, evidence-based expansive shrub lands.119 mitigations for communities in California. These Research about the vulnerabilities to communities standards should be regularly updated to ensure and how to mitigate them is underway. alignment with the latest research and any new or Representatives from IBHS shared that they existing state laws. are currently developing the Wildfire Prepared Neighborhood Program to establish vulnerability standards for communities, similar to their Wildfire Three Levels of Prepared Home standards for individual homes, and expect to have a draft concept by the end of 2024.120 Mitigation For Reducing Fire Risks Building on this work, the state should partner with IBHS to adopt and integrate community-level Effectively reducing the risks of fires standards for mitigating fire risk into grants to entails mitigation at three levels: support fire adapted communities. As with parcel- level mitigation standards, the state should regularly Individual: Parcel-level efforts to update the community-level mitigation standards to harden a home and create defensible ensure they align with the latest research and any space around a property. new or existing state laws. Community: Neighborhood-level Recommendation 5: Lawmakers should require efforts that involve vegetation the Department of Insurance, in partnership with management, such as fuels reduction CAL FIRE and insurance research organizations such along roadways and in community as the Institute for Business and Home Safety, to spaces and establishing fuel breaks, or define a fire safe minimum set of core, evidence- other fire-safe activities, like evacuation based mitigations for homeowners. Lawmakers route planning. also should require the Department of Insurance to review and update these standards on a regular Landscape: Large-scale mitigation that basis to ensure continued alignment with evolving includes forest restoration through research about how to protect homes from fire and thinning or prescribed fire. advise lawmakers on any discrepancies between the standards and statute. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 25 Ensure Homeowners Have homeowners, particularly in times of market distress Access to All Options for Home such as in 2018 when the state experienced a period Insurance of intense wildfires and in 2023 when admitted insurers began pulling back from the state’s home State law outlines an ideal sequence for homeowners insurance market. to obtain insurance coverage, first with admitted insurers licensed by the State of California, then While the California Department of Insurance with the non-admitted market through California- shares a list of approved surplus line insurers licensed surplus line brokers. Homeowners unable on its website,123 it does not appear to provide to obtain coverage through these “normal” channels clear information on how to look up or otherwise may ultimately seek basic coverage through the FAIR contact one of the state’s 8,500 licensed surplus Plan, as California’s insurer of last resort.121 However, line brokers.124 The Surplus Line Association of Benjamin McKay, CEO and Executive Director of the California includes a Surplus Line Insurer Lookup on Surplus Line Association of California, testified that, in its website,125 but it is not clear how well known this practice, homeowners who lose their insurance in the resource is among admitted brokers and agents or admitted market often seek coverage directly from if and how it is promoted. This lack of information the FAIR Plan rather than first considering options could potentially limit the choices homeowners have through surplus line insurers.122 when considering which type of insurance product to purchase to protect their home. For homeowners seeking full coverage for their properties but denied by the admitted market, Recommendation 8: The Department of Insurance surplus line policies may provide a way to obtain should provide clear instructions for insurance more than the basic coverage offered through the brokers and agents on how to contact a California- FAIR Plan. Though the majority of surplus line policies licensed surplus line broker on its website. are written in the commercial market, these policies offer a critical option for thousands of California California Surplus Line Home Insurance Policies 56,989 60,000 48,913 50,000 40,000 33,246 30,000 20,000 10,000 0 2018 2021 2023 Source: Benjamin McKay, CEO and Executive Director, Surplus Line Association of California. April 25, 2024. Written testimony to the Commission. 26 | LITTLE HOOVER COMMISSION Leverage Property Condition fires – and indicate whether a part of the state is in relatively low- or high-risk of fire. But these maps and Risk Information to do not include data points about the level of risk Inform Policy Decisions and to an individual property – such as how a home is Investments constructed, its condition, or its built characteristics – that could inform a homeowner or homebuyer of a Certain industries maintain centralized databases risk to a specific parcel.127 of risk information to share with various interested parties. For example, the Department of Motor State agencies assessing future infrastructure, Vehicles maintains a centralized database of car housing, transportation, and economic development registrations, moving violations, credit reports, needs in high fire risk areas do not have access to and other relevant data, while the airline industry consistent risk and mitigation data, which limits pools data from airlines, pilots, manufacturers, planning efforts.128 Similarly, other interested parties, and laborers doing on-the-ground-maintenance. such as local planning organizations, fire officials, or However, while various entities collect wildfire emergency responders who want to better assess risk data – from federal and state agencies to fire risk and resiliency on-the-ground, do not have access practitioners and insurers – no such shared database to complete and up-to-date parcel-level information. of parcel-level fire risk exists. Experts told the Commission these and other Keeping this valuable information locked away in challenges could be improved by the creation various silos, inaccessible to all who could benefit of a shared data clearinghouse of property risk from its use, is a missed opportunity for insurers, information – often referred to as a data commons homeowners, local officials, regulators, and others. – accessible to insurers, homeowners, relevant state and local government agencies, community The insurance industry collects a wealth of parcel- organizations, and policymakers.129 level information about a property’s condition and risk, but it is kept siloed for use by each individual In recent years various groups have advocated for insurance carrier when assessing risk values and the establishment of a data commons. For example, writing policies. Without a centralized mechanism to in its 2023 draft report to the Legislature, the Risk collect property information, insurers must repeat Modeling Advisory Workgroup found that consistent inspections when owners switch to a different and broad collection of parcel-level data could help carrier. There also is no easy or cost-effective develop a more informed view of a community’s way for insurers to repeatedly inspect changing wildfire risk. It noted, however, that this sort of data property conditions over the course of a year, or to is collected sporadically, may not be verified, may consider information gathered by CAL FIRE or other not consider real-time changes, and is not available organizations that conduct property inspections.126 consistently to different entities assessing wildfire risk. The Workgroup concluded that the “lack of Homeowners or homebuyers who want to access to appropriate data is a major barrier to understand the fire risk of their current or assessing [fire] risk at scale” and recommended an future property do not have easy access to such ongoing, coordinated data collection effort through information. They may review CAL FIRE’s fire hazard the establishment of an open data commons.130 severity zone maps that assess the landscape in The Workgroup, which was established pursuant which homes are built – accounting for characteristics to legislation in 2021 to advise CAL FIRE, included like fuel, vegetation, and topography that can feed BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 27 representatives from insurance, fire chiefs and Recommendation 9: The Legislature should require firefighters, the building industry, local government, the creation of a data commons to enable insurers, and several key state agencies.131 The state has fire officials and emergency responders, city planners not yet taken formal action to implement the and developers, and the public access to the same Workgroup’s recommendations. risk information. However, Nancy Watkins, Principal and Consulting Establish a Public Catastrophe Actuary with Milliman, Inc., told the Commission that Model for the State Milliman and IBHS have begun to lay the groundwork for the development of a data commons. To date, As California moves forward with regulations to they have surveyed critical stakeholders including allow insurers to use proprietary public catastrophe insurers, reinsurers, wildfire catastrophe model models in setting rates, it should also take steps to vendors and state insurance regulators and created ensure that state and local leaders, researchers, a sample data specification of the types of parcel- emergency planners and responders, and the level data that could be collected and pooled. They public have a means to similarly access a detailed next plan to identify insurers to contribute home assessment of risk across the state. inspection data, define data collection methodologies In September, Insurance Commission Lara and standards, and secure funding to build a announced a partnership with Cal Poly Humboldt prototype.132 to form a working group to explore the creation of Despite this progress, there is room for the state a public wildfire catastrophe model. He explained to take a lead role in ensuring that California builds expectations that a public wildfire model would serve the information infrastructure necessary to reap as a benchmark against which the Department could the broad range of benefits that could come from measure private catastrophe models and would a data commons. To effectively reduce fire risk, provide data for local agencies to improve fire safety. strategically invest in mitigation, improve the home The workgroup will be chaired by the Dean of the insurance market, and inform future planning efforts, College of Natural Resources at Cal Poly Humboldt, state leaders should ensure that reliable, timely and will invite experts in climate science, forestry, parcel- and community-level data is available to all and wildfire safety from across California’s system of who need it. Building on burgeoning efforts already higher education to issue recommendations on how underway, the state should partner with IBHS and to establish a public wildfire model to the Insurance other key stakeholders to develop an open data Commissioner by April 2025.134 commons for fire risk information. As recommended There is some precedent for creating a public by both the Risk Modeling Advisory Workgroup and catastrophe model. In Florida, lawmakers funded the Milliman, this effort will need to address a number state’s Department of Insurance to appoint a multi- of critical issues, such as determining ownership of disciplinary group of researchers in 2001 to develop and funding for the platform; establishing control a public hurricane catastrophe model to account and security protocols for its use; defining collection for wind hazard, vulnerability, and insured loss standards and specifications so that information can cost.135 The resulting team, led by the International be inputted and aggregated from multiple sources; Hurricane Research Center at Florida International and, defining community vulnerability standards.133 University, ultimately included a panel of experts across a variety of fields such as meteorology, wind 28 | LITTLE HOOVER COMMISSION and structural engineering, computer science, GIS, Beyond empowering consumers with risk statistics, finance, and actuarial science, and experts information, some experts shared that a public from other universities and institutions.136 catastrophe model could provide greater insights into state and local disaster planning and response By 2006, the team of researchers developed the efforts. For example, in 2021, the Climate Insurance first version of the model, which could estimate Working Group – convened by the Department the impact of mitigation efforts, analyze various of Insurance to examine issues related to climate hurricane scenarios, and generate probable losses change, resilience, and insurance144 – found that for residential properties to help state regulators a public model could help homeowners and local evaluate rate filings. The state later provided communities understand their wildfire risk down additional funding to enhance the predictive power to the parcel-level, as well as what they could do of the model by adding storm surge and inland to effectively reduce that risk. They ultimately flooding components.137 By 2018, the state had used recommended the development of a publicly the hurricane wind loss model more than 1,100 times available mitigation model as a way to help local to evaluate rate filings.138 The sixteenth, and most and state government leaders identify and invest current, version of the model was certified by the in effective mitigation, recommend how the state Florida Commission on Hurricane Loss Projection could provide mitigation incentives, and inform local Methodology last year.139 evacuation planning.145 Laurie Johnson, an urban planner who specializes in disaster, recovery, and The Commission heard from a number of consumer catastrophic risk management, told Commissioners advocates and local representatives in favor of that a public, open-source model could be incredibly California developing its own public catastrophe valuable to state and local leaders when prioritizing model. Some advocates, like United Policyholders, and funding hazard mitigation projects. She also said support the “development of a non-commercial, models could be used to help emergency managers, public model as a measuring stick against private resilience planners and community organizations models.”140 Others, like Consumer Watchdog, are in better map, prepare, and respond to a variety of favor of developing a public model in lieu of allowing disasters, such as earthquakes, tsunamis, hurricanes, insurers to use proprietary models in rate making. and floods.146 Specifically, they argue a public model would provide transparency into how risk is assessed and priced.141 Undoubtedly, developing an open-source, public This information could provide greater assurances risk model will require a significant commitment to homeowners that the climate modeling used to of time and resources. It also would benefit from set rates is accurate, uses the right science, is fair information sharing enabled by a data commons, and unbiased and “empower[s] consumers and as described above. Despite these hurdles, the communities to understand and act on their own potential applications for a variety of users beyond climate risk.”142 Further, they argue that “California’s insurance regulation would empower state leaders long climate leadership and deep bench of leading to act proactively to plan and mitigate catastrophic academics, engineers, climate scientists and risks. The benefits, both in terms of enhanced computing experts strongly position the state to transparency around insurance pricing and create a public model to serve all Californians.”143 resiliency to homes and communities across the state, warrants prioritization. Given that the public wildfire catastrophe model working group will not submit their recommendations to the Department BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 29 for consideration until April 2025 and the current Given the median age of owner-occupied homes Insurance Commissioner’s term is set to expire in California – 48 years according to data from the in 2026, lawmakers should take action to ensure 2022 American Community Survey147 – a significant that this momentum is not stalled by a change in number of homes could require substantial work to Administration. meet current fire safe standards.148 Borrowing from Florida and the private market, The significant expense involved in making a home lawmakers should codify the creation of a public fire safe, coupled with the uncertainty around the wildfire catastrophe model for use by insurers and benefit that might be realized in terms of insurance regulators, as well as local governments, emergency pricing or coverage, has made some homeowners managers, resilience planners and funders, reluctant to rebuild, even if they can feasibly afford community organizations, the public, researchers, those repairs.149 For others, depending on the extent and others. Such an effort can and should draw from of renovation needed, the physical and financial the expertise within California’s institutions of higher demands required preclude them from completing learning as well as key Administrative agencies, such the work themselves. For example, a Fresno as the Department of Insurance, CAL FIRE, and the homeowner who received a non-renewal notice told Governor’s Office of Emergency Services. the Commission that she found an insurer willing to cover her home if she replaced the roof, but said Recommendation 10: The Legislature should task a she was unable to afford the $10,000 price tag. multidisciplinary team of experts to create a public, Without other options, she said she is now without open-source model to assess the risk of wildfires insurance.150 This experience was echoed by a and other climate-related catastrophes and to number of county representatives – from Humboldt, predict insured losses for residential properties and Lassen, and Tuolumne – who shared that when facing communities. increasing insurance premiums, a growing number of homeowners, particularly among their older Help Homeowners Protect Their populations, are foregoing insurance, both because Properties Against Fire of the premiums and the costs to fortify their homes. Without assistance, this retired population will end As climate change increases the frequency of up homeless should a fire consume their home, devastating disasters in California, it has become officials warned.151 more important than ever for individuals and communities to prepare for the worst. Much of California’s existing housing stock was built prior “We do need all individuals, to building standards that include greater fire property owners, to really lean protection measures, and hardening those homes into mitigation. This is…how we could produce a number of significant benefits for both policy holders and insurers. Some predict this are going to make the insurance work would help stabilize the state’s home insurance market more stable over time, market in the long-term, making it easier and more affordable for Californians to obtain and maintain certainly [make] coverage more insurance coverage for their homes. It also could affordable for all.” Karen Collins, lower insurers’ claims payouts to homeowners American Property Casualty following disasters and reduce the burden and cost of post-disaster recovery efforts. Insurance Association152 30 | LITTLE HOOVER COMMISSION A few states offer examples of ways to support and documentation, and, after implementing repairs, encourage homeowners – particularly those from a certificate noting successful completion which vulnerable populations – to proactively protect their can be used to help obtain or maintain home properties against climate-related hazards.153 insurance. Homeowners who work through an approved contractor may apply for grant ◊ Strengthen Alabama Homes: This program funding to cover half of the contractor’s cost, up is sponsored by the insurance industry and to $2,000; participants with limited incomes may administered by the Alabama Department of apply for a need-based award to cover additional Insurance. It provides grants to help Alabama costs. Participating homeowners can get a state residents, regardless of income, protect tax break up to $2,500.161 The county’s wildfire their homes from wind damage.154 To apply, mitigation programs are supported by federal, homeowners must first pay for a home inspection state, and county funds, including a sales tax for conducted by an IBHS-trained evaluator. Based wildfire mitigation, passed by Boulder County on findings, homeowners may receive a grant of voters in 2022.162 up to $10,000 to replace their roof or fortify other ◊ Colorado Wildfire Mitigation Tax Incentives: vulnerable areas of their home to meet IBHS Colorado lawmakers approved a series of tax standards. Participating homeowners also may be incentives to encourage landowners to take a eligible for insurance discounts of 25 to 55 percent number of wildfire mitigation actions, such as and a tax credit of up to $3,000 for mitigation creating defensible space around structures, work.155 establishing fuel breaks, or thinning vegetation. ◊ My Safe Florida Home Program: Florida Landowners may claim an income tax subtraction lawmakers approved appropriation of $200 million of up to $2,500 a year for their out-of-pocket for the Florida Department of Financial Services expenses performing wildfire mitigation measures to fund free wind mitigation home inspections on their property between 2017 and 2025. Certain and issue grants to eligible homeowners.156 landowners also may claim a tax credit for wildfire After receiving a home inspection through the mitigation measures taken in tax years 2023 to program, participating homeowners may apply for 2025, equal to a quarter of their expenses up to hurricane mitigation grants to cover two-thirds of $2,500 a year.163 the costs of recommended improvements, up to a These types of programs are not without precedent maximum of $10,000.157 To encourage additional in California, as evidenced by both the California mitigation, lawmakers also passed a 2-year sales Earthquake Brace and Bolt Program and the tax exemption for homeowners who purchase California Wildfire Mitigation Program. certain home hardening products, such as impact-resistant doors.158 Since 2025, Florida has California’s Brace and Bolt Program provides grants required insurers to provide premium discounts to eligible homeowners living in specific zip codes to to homeowners who mitigate their homes against help pay for the costs associated with an earthquake hurricane losses.159 retrofit of their home.164 ◊ Wildfire Partners Program: Boulder County, Colorado, offers free home assessments to eligible residents in west Boulder County.160 Participating homeowners receive a customized mitigation checklist of needed repairs, photo BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 31 Even more relevant is the California Wildfire Mitigation Program, which lawmakers established in 2019 to create fire resistant homes through cost- Examining effective structure hardening and retrofitting and Opportunities to strengthen community-wide wildfire resilience.166 Address the Drivers of Jointly administered by the Cal OES and CAL FIRE, Climate Change the pilot program has received 161 applications and completed 77 home assessments in select Over the course of the Commission’s high fire risk communities in four counties – San review, some experts pointed to Diego, Shasta, Siskiyou, and Lake.167 With funding the role of fossil fuels and other from a variety of state, federal, and other sources, greenhouse gas emissions in participating homeowners receive an individualized contributing to climate change, which in home assessment report and may receive financial turn increase the frequency of extreme assistance for wildfire home hardening, including weather events that pose challenges for retrofitting and defensible space creation. The insurers. program also supports community and homeowner education on home hardening. State Fire Marshal Former Insurance Commissioner Dave Daniel Berlant explained to Commissioners that the Jones told Commissioners that insurers goal of the program is to retrofit individual homes, in the United States are collectively but also to build a framework for deploying and investing $569 billion dollars in the funding community mitigation at scale.168 fossil fuel industry — the main emitter causing global temperatures to rise, While this program is a promising start, some which in turn leads to more frequent stakeholders, like Humboldt County Supervisor Rex and severe weather-related events, Bone, emphasized the need for California to do even including catastrophic wildfires. He more to support and incentivize homeowners to argued that ultimately, the insurance mitigate fire risks on their properties. “Hardening industry could move away from is the main thing,” he said, “but we should reward industries that drive the risks that the people that are putting the effort forward make it challenging to write policies in somehow.”169 Like other states have done, some California.165 experts suggested California, in partnership with insurers, should offer additional grants or tax While examining the investment incentives for homeowners to do the work, or make it practices of California insurers and the easier for homeowners to gauge and prioritize what possible connection to climate change repairs to make and find the skilled labor to do the falls outside the scope of this review, work correctly. such research could be beneficial to state policymakers. Others have suggested both insurers and homeowners could benefit from streamlined home inspection processes. On-the-ground home inspections that note the condition of a home, the 32 | LITTLE HOOVER COMMISSION various types of materials used in its construction, Recommendation 11: California should expand and the layout of the surrounding land can be programs to help homeowners update their expensive and time-consuming for insurers who properties. These programs should be aligned must collect this detailed information to assess with evidence-based standards for fire protection. the risk of writing or renewing each individual Lawmakers should consider supporting various homeowners policy. Armed with this information, strategies to encourage and support home homeowners could be better informed about how hardening, such as: best to protect their home and prioritize renovation projects. But without a standardized home inspection ◊ Partnering with insurers to offer incentives, such as tax breaks, grants, and/or insurance discounts. process to assess for fire risks, it currently is difficult to capture home inspection information efficiently ◊ Expanding California’s Wildfire Mitigation Program or consistently. Some, including Nancy Watkins, an beyond its current six pilot communities. expert on catastrophic risk for insurers, told the ◊ Establishing a standardized home inspection Commission that California should consider ways to process, in partnership with insurers and various partner with insurers and third-party inspectors to state and local agencies, to capture home capture risk information and drive down the costs inspection information and verify home hardening associated with assessing or reassessing risk on improvements more efficiently and consistently. individual properties.170 “[This is] the perfect opportunity for the insurance industry to partner with and capitalize on government-funded initiatives, innovation, and education to further amplify efforts to buy down risk and build a culture of preparedness on the part of policy holders and communities at large,” former Cal OES Director Mark Ghilarducci told Commissioners.171 Undertaking home hardening measures can be cost prohibitive for some homeowners, but these types of repairs ultimately cost less than renovating a property and community after a devastating fire. Proactive mitigation can help prevent some of the worst devastation; but to be effective, it must be done strategically and on a wide scale. California needs to amplify support for homeowners in identifying, prioritizing, and funding effective home hardening improvements so that every dollar invested in mitigation reaps maximum benefits – to homeowners, and ultimately their communities and the state. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 33 Appendix A: Select Wildfire Home Mitigation Guidelines Insurance Institute for California United CAL Firewise USA176 Business and Home Interagency Policyholders FIRE175 Safety (IBHS)172 Partnership173 WRAP Initiative174 Wildfire Wildfire Safer From Mitigated Ready For Home Prepare Prepared Prepared Wildfires Dwelling Wildfire Ignition Your Home: Home: Plus Measures Home Zone Home Base Retrofit Checklist for Guide Wildfires General Single-family detached home, 3-stories or x x less, in California Being safer together - Firewise USA and x Fire Risk Reduction Communities Ensure your home and neighborhood have legible and clearly marked street x names and numbers to allow emergency responder access Roof/Gutters/Eaves Clean roofs and gutters of dead leaves, x debris, and pine needles Replace wood shake/shingle roof with a x x x x x x Class-A fire rated roof Replace or repair any loose or missing x x shingles or roof tiles If the roof consists of Class B or C roofing materials (shake or shingle, recycled plastic, rubber, aluminum) determine x if the underlayment provides Class A protection Replace plastic or vinyl gutters with metal x x x gutters Block openings between the roof deck x and covering In open-eave areas, screen vents and fill x other gaps with durable caulk Enclosed eaves by installing soffits x x x x x Install non-combustible gutter covers x x x Install non-combustible and corrosion- x resistant metal drip edge at the roof edge Use metal step flashing at roof-to-siding x intersection Cover chimney and stovepipe outlets x with a non-combustible screen Vents Install ember- and fire-resistant vents x x x x x x x Install non-combustible dryer vent, which x x includes louvers or a flap Clear attic and crawl space vents of x x combustible items Exterior Siding and Shutters Non-combustible 6 in. at the bottom of x x x x exterior walls 34 | LITTLE HOOVER COMMISSION Insurance Institute for California United CAL FIRE Firewise USA Business and Home Interagency Policyholders Safety (IBHS) Partnership WRAP Initiative Wildfire Wildfire Safer From Mitigated Ready For Home Prepare Prepared Prepared Wildfires Dwelling Wildfire Ignition Your Home: Home: Plus Measures Home Zone Home Base Retrofit Checklist for Guide Wildfires Exterior Siding and Shutters Install non-combustible siding, such as fiber-cement board, stucco, brick, metal, x x x or stone veneer In new construction, use one-hour wall design to add a fire resistant layer in the x wall assembly Replace combustible siding in roof-to-wall locations (as opposed to all siding) with a x non-combustible option Use metal flashing that extends up the x siding 6 in. at roof-to-siding locations Replace combustible decorative shutters x x with non-combustible shutters Windows and Screens Replace all exterior windows with tempered, multi-paned glass, or fire x x x x resistant glass blocks Replace domed, plastic skylights with flat, x multi-paned, tempered glass skylights Add a 1/16-in. non-combustible corrosion resistant-metal mesh screening to x skylights Install screens in all operable windows x Repair or replace damaged or loose x window screens and any broken windows Enclose any open area underneath a ground floor bay window with an exterior x wall and non-combustible siding Exterior Doors Upgrade to solid exterior doors that have a metal threshold and are constructed x with non-combustible or ignition- resistant material Exterior doors with glass should be made x with tempered, multi-paned glass Exterior door alternative: install a non- combustible, fire-resistant storm door to x cover existing door Choose fire-resistant building materials and limit the amount of flammable x vegetation in the home ignition zones (0 to 100 ft. of the home) Decks/Patios Clear vegetation, weeds, and debris from x x x x x x under decks BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 35 Insurance Institute for California United CAL FIRE Firewise USA Business and Home Interagency Policyholders Safety (IBHS) Partnership WRAP Initiative Wildfire Wildfire Safer From Mitigated Ready For Home Prepare Prepared Prepared Wildfires Dwelling Wildfire Ignition Your Home: Home: Plus Measures Home Zone Home Base Retrofit Checklist for Guide Wildfires Decks/Patios Clear anything stored under decks or x x x x x x stairs Include 5-foot non-combustible buffer x x x around decks and stairs Clear decks and covered porches: remove large rugs and combustible furniture; only include non-combustible furniture x x and up to 10 non-combustible terra cotta or ceramic planters with small flowers or plants Build or retrofit to a non-combustible x deck Apply metal flashing or foil-face bitumen tape on top of and a few in. down the x side of the support joints on a deck For cedar and redwood decks, increase the size of the gap between deck boards; for combustible decking materials, replace board closest to the home with x non-combustible material; use non- combustible or higher density decking products in new decks Enclose area underneath decks at a height of 4 ft. or less with a fine metal x x x wire mesh or non-combustible wall covering Hot tubs on a non-combustible patio x x must be 10 ft. from the home Remove hot tubs from underneath x x covered porches and combustible decks Fence Replace combustible fencing, posts, and x x x gates within 5 ft. of a home with metal Remove back-to-back fencing - separate, parallel fences that are less than 5 ft. x apart - within 30 ft. of the home Last 5 ft. of any fencing attached to home x x must be non-combustible materials Do not use fences as a trellis for plants x Yard Clear a 5-foot ember resistant zone around home, remove all vegetation, trees including overhanging branches, x x x x x x grass/turf, wood/rubber mulch, and stored items. Install 5 ft. of hard groundcover material, x x x x surrounding home 36 | LITTLE HOOVER COMMISSION Insurance Institute for California United CAL FIRE Firewise USA Business and Home Interagency Policyholders Safety (IBHS) Partnership WRAP Initiative Wildfire Wildfire Safer From Mitigated Ready For Home Prepare Prepared Prepared Wildfires Dwelling Wildfire Ignition Your Home: Home: Plus Measures Home Zone Home Base Retrofit Checklist for Guide Wildfires Yard Cont. Defensible space compliance - tree x trimming and brush removal Maintain the yard: irrigate and maintain cut grass at no more than 4 in. tall, x x x x cleared tree debris, remove dead vegetation Firewood stored 30 ft. from structures x Trim trees - remove branches less than 6 ft. above the ground; trim upper x x x x branches to maintain at least 10 ft. between canopies of trees Plant low-growing, fire-resistant shrubs; relocate shrubs that are under or near trees; plant in a discontinuous path of x x vegetation; remove hedges or bushes that will create more fuel Remove plants containing resins, oils, x and waxes Between 30 and 100 ft. of the home remove dead plant material, lower tree x branches, and other shrubs. Ancillary Structures Remove combustible sheds and other x x x x outbuildings to at least 30 ft. Remove combustible structures (pergola/gazebo) and replace with non- x combustible material Remove all vegetation such as vines and x curtains/drapes/screens Place structures (sheds, hot tubs, pergolas, playsets) at least 10 ft. away x from home or decks Create 5-ft. non-combustible buffer x x around each structure Move large stationary propane tanks to 30 ft. away from the home or x x x at a minimum, 10 ft. away buried underground, enclosed with concrete Combustible structures located within 25 ft. of dwelling must include tempered glass in dual pane window and non- x combustible, fire rated cladding on walls facing dwelling Total Recommendations 23 37 10 13 33 8 13 Total Unique Recommendations: 1 10 2 1 15 2 3 BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 37 Appendix B: Letter to Commissioner Lara from Chairman Nava 38 | LITTLE HOOVER COMMISSION BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 39 40 | LITTLE HOOVER COMMISSION Appendix C: Chronology of Select Events Impacting California’s Home Insurance Market 1988 ◊ November: Voters pass Proposition 103, creating the basic regulatory framework that remains in place today for insurance, and making the Insurance Commissioner an elective office, effective in 1990. 1989 ◊ October: The magnitude 6.9 Loma Prieta earthquake, centered in the Santa Cruz Mountains, causes damages and business interruptions totaling as much as $10 billion.177 1991 ◊ January: John Garamendi becomes Insurance Commissioner. ◊ October: Tunnel-Oakland Hills Fire in Alameda County burns 1,600 acres and destroys 2,900 structures, resulting in an estimated $1.5 billion in economic losses.178 1994 ◊ January: A magnitude 6.7 earthquake centered in Northridge strikes Southern California, causing up to $20 billion in damages and over $40 billion in economic losses, making it the costliest earthquake in U.S. history.179 Ninety-three percent of insurers stop or restrict writing policies, and the FAIR Plan assesses its members $260 million.180 1995 ◊ January: Chuck Quackenbush becomes Insurance Commissioner. 1996 ◊ Lawmakers remove earthquake insurance from the standard home insurance policy and establish the California Earthquake Authority, a publicly managed and privately funded entity that serves as a marketplace for earthquake insurance.181 ◊ The California Department of Forestry and Fire Protection develops the “California Fire Plan,” a framework for reducing costs and losses from wildfire that emphasizes that residents need to be involved in planning for fire safety.182 2003 ◊ January: John Garamendi becomes Insurance Commissioner. ◊ October to November: Fourteen wildfires sweep across Southern California, including the Cedar Fire in San Diego County, the largest of the blazes. The fires destroy 3,641 homes, burn nearly 745,190 acres of land, and result in $2.5 billion in losses.183 2007 ◊ January: Steve Poizner becomes Insurance Commissioner. ◊ October: The Southern California Fire Siege, including the Witch and Harris Fires in San Diego County, burns 516,465 acres, destroys 3,069 structures,184 and causes an estimated $1.8 billion in property damages.185 BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 41 2015 ◊ January: Dave Jones becomes Insurance Commissioner. 2016 ◊ California’s average homeowners insurance premium reaches $1,000 a year for the first time, having increased less than $100 per year over the previous nine years. 2017 ◊ Wildfires burn 1,599,640 acres and destroy 10,868 structures across the state, making 2017 the most destructive fire year in California history up to that time.186 2018 ◊ Wildfires burn 1,975,086 acres and destroy 24,226 structures across the state, breaking the previous year’s record as the most destructive year in California history.187 ◊ March: Senate Insurance Committee and Joint Legislative Committee on Emergency Management hold an informational hearing on California’s home insurance market and climate change. Background materials note that, “…it is time to consider whether insurers can be expected to absorb wildfire losses within a year or two without having to increase rates significantly, or whether regulatory changes and improvements in building codes, zoning changes and wildlands management can reduce the risks of catastrophic fire in a meaningful way.”188 ◊ August: The Natural Resources Agency releases a report finding evidence that the admitted residential insurance market in California’s high-risk wildfire areas is less effective, with higher premiums, non-renewals, and surplus lines usage. The report also finds insurance regulations around rate-setting, risk modeling, and reinsurance costs will be key in how climate change impacts the state’s residential insurance market.189 ◊ September: ◊ SB 824 (Lara) is signed into law, prohibiting an insurer from canceling or refusing to renew a homeowners’ insurance policy for one year after of a state of emergency is declared. ◊ SB 30 (Lara) is signed into law, requiring the Insurance Commissioner to convene a working group to assess new investments in infrastructure and insurance products in light of California’s worsening fire vulnerability due to climate change. 2019 ◊ January: Ricardo Lara becomes Insurance Commissioner. ◊ June: The Governor’s Office of Planning and Research releases its final report of the Commission on Catastrophic Wildfire Cost and Recovery, finding California is marching toward a future where home insurance will be increasingly unavailable and/or unaffordable for many in California’s WUI.190 ◊ November: Insurance Commissioner Lara orders the FAIR Plan to offer a comprehensive policy covering dwelling damage, loss of personal property, and liability.191 ◊ October: AB 1816 (Daly) is signed into law, requiring insurers to renew policies for at least 24 months, if the property suffered a total loss in a declared disaster. 42 | LITTLE HOOVER COMMISSION 2020 ◊ California FAIR Plan surpasses 200,000 dwelling policies in force for the first time ever, up from 154,000 the previous year. ◊ Wildfires burn 4,304,379 acres and destroy 11,116 structures across the state, making 2020 the largest wildfire season recorded in California’s modern history.192 ◊ September: AB 3012 (Daly/Wood) is signed into law, creating a residential FAIR Plan clearinghouse program. ◊ October: The Department of Insurance holds virtual investigatory hearing regarding considered code changes to address the “pervasive and increasing challenges that homeowners face when seeking and maintaining insurance in high wildfire risk regions of California.”193 2021 ◊ Average premium statewide tops $1,400 for the first time ever, up from approximately $1,000 four years earlier. ◊ Statewide non-renewal rate tops 12 percent for the first time ever, up from 10.5 percent the year before. ◊ July: The Department of Insurance’s Climate Insurance Working Group releases report with 40 recommendations to address rising costs from climate-related threats through improved risk assessment and reduction, smarter land use and building practices, nature-based solutions, and innovative insurance strategies.194 2022 ◊ California FAIR Plan has more than 264,000 dwelling policies in place, up from approximately 200,000 two years before. ◊ February: Insurance Commissioner Lara releases Safer from Wildfires.195 ◊ October: Insurance Commissioner Lara announces adoption of requirements for insurers to reflect Safer from Wildfire mitigations into their rating plans, provide consumers with their property’s “risk score,” and create a right to appeal that score.196 ◊ November: Allstate announces pause to writing new home and condo policies in California, citing “the cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes and higher reinsurance premiums.”197 2023 ◊ California FAIR Plan has 339,000 dwelling policies in place, up from 264,000 the year before. ◊ May: State Farm announces it will cease accepting new business and personal property and casualty applications, citing “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”198 BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 43 2023 CONT. ◊ June-August: ◊ Occidental Fire & Casualty Company of North Carolina announces intent to withdraw from the California home insurance market;199 ◊ Farmers Insurance announces that it will write a limited number of home insurance policies in California;200 ◊ AmGUARD and Falls Lake announces plans to stop writing new home policies and to drop active policies at their renewal dates;201 ◊ Safeco announces plans to drop home insurance policies in the broader Bay Area, citing earthquake and home fires risk.202 ◊ USAA announces plans to limit California home insurance coverage beginning in March 2024, only insuring homes based on a low wildfire risk score.203 ◊ September: Governor Newsom issues Executive Order to urge prompt regulatory action to strengthen California’s homeowners insurance market.204 Insurance Commissioner Lara announces Sustainable Insurance Strategy.205 2024 ◊ January: The Hartford announces it will not write new homeowners insurance policies in California beginning in February 2024.206 ◊ February: Commissioner Lara releases draft regulation regarding complete property and casualty rate applications.207 ◊ March: ◊ State Farm announces non-renewal of approximately 30,000 homeowners and other property insurance policies in California, beginning in July 2024, citing “inflation, catastrophic exposure, reinsurance costs, and limitations of working within decades-old insurance regulations.”208 ◊ Commissioner Lara releases draft regulation regarding catastrophe modeling;209 ◊ Assembly Insurance Committee holds oversight hearing on the FAIR Plan where Plan President Victoria Roach testifies that its “one event away from a large assessment.”210 ◊ April: Tokio Marine America Insurance and Trans Pacific Insurance announce they will cease writing homeowners insurance policies in California.211 ◊ May: Governor Newsom proposes to speed up insurance premium rate reviews by the Department of Insurance.212 ◊ June: Commissioner Lara releases updates to draft catastrophe modeling regulations and map of distressed wildfire areas.213 ◊ August: ◊ Liberty Mutual announces it will not renew 17,000 California home policies.214 ◊ Commissioner Lara issues a Bulletin implementing insurance rate review reforms.215 44 | LITTLE HOOVER COMMISSION Notes 1. Department of Insurance. Fact Sheet: Summary on 12. Note: The Commission offered its support for a trailer Residential Insurance Policies and the FAIR Plan. https:// bill, released in May by the Governor to expedite the www.insurance.ca.gov/01-consumers/200-wrr/upload/ home insurance rate review process. In August, Com- CDI-Fact-Sheet-Summary-on-Residential-Insurance-Poli- missioner Lara issued a Bulletin implementing these cies-and-the-FAIR-Plan.pdf. administrative actions. 2. State Farm General Insurance Company. March 20, 2024. Source: Little Hoover Commission. Support Letter: Home Update on California. https://newsroom.statefarm.com/ Insurance Trailer Bill. July 2024. https://lhc.ca.gov/ update-on-california/. Also, Natalie Todoroff. “Limited report/support-letter-home-insurance-trailer-bill/. home insurance options in California as major carriers Also, California Insurance Commissioner Ricardo Lara. pull back.” Bankrate, February 23, 2024. Also, Matthew Bulletin 2024-7. Revisions to Department Review of Kupfer. “Over 50,000 to lose home insurance as two Complete Rate Applications. August 9, 2024. https:// more insurers exit California.” The San Francisco Stan- www.insurance.ca.gov/0250-insurers/0300-insur- dard, August 15, 2023. Also, Megan Fan Munce. “Cali- ers/0200-bulletins/bulletin-notices-commiss-opinion/ fornia home insurer with 9,000 policies withdraws from upload/Bulletin-2024-7-Revisions-to-Department-Re- state.” The Chronicle, June 18, 2024. view-of-Complete-Rate-Applications.pdf. 3. Public Policy Institute of California. Statewide Survey: 13. Note: California law requires drivers obtain and carry ev- Californians and the Environment. July 2024. https:// idence of insurance to own and operate a vehicle in the www.ppic.org/publication/ppic-statewide-survey-califor- state and sets minimum requirements for this coverage. nians-and-the-environment-july-2024/. California law also requires most residents to obtain and maintain qualifying health insurance throughout the 4. California Department of Forestry and Fire Protec- year or face a tax penalty. tion. “Top 20 Most Destructive California Wildfires.” March 27, 2024. https://34c031f8-c9fd-4018-8c5a- Source: Government Code, Sections 100700-100725. 4159cdff6b0d-cdn-endpoint.azureedge.net/-/media/ Also, Vehicle Code, Sections 16020-16033. calfire-website/our-impact/fire-statistics/top-20-destruc- tive-ca-wildfires.pdf. 14. Department of Insurance. Residential Insurance: Home- owners and Renters. Revised May 2021. https://www. 5. Voter Information Guide for 1988, General Election. insurance.ca.gov/01-consumers/105-type/95-guides/03- Proposition 103: Insurance Rates, Regulation, Commis- res/res-ins-guide.cfm#introduction. sioner. https://repository.uclawsf.edu/cgi/viewcontent. cgi?article=1987&context=ca_ballot_props. 15. Note: Purchasing earthquake insurance is not required by state law. 6. Government Code, Section 8541. Source: Department of Insurance. Earthquake Insurance. 7. California Department of Finance. 2023-24 May Revision. https://www.insurance.ca.gov/01-consumers/105- 0845 Department of Insurance. type/95-guides/03-res/eq-ins.cfm. 8. Dave Jones, Center for Law, Energy & Environment, UC 16. Note: Flood insurance is required for homes and busi- Berkeley School of Law. March 28, 2024.Testimony to the nesses with mortgages in areas that are determined to Commission. be in high-risk flood zones. 9. Voter Information Guide for 1988, General Election. Source: U.S. Federal Emergency Management Agency. Proposition 103: Insurance Rates, Regulation, Commis- Flood Insurance. https://www.fema.gov/flood-insurance. sioner. https://repository.uclawsf.edu/cgi/viewcontent. cgi?article=1987&context=ca_ballot_props. 17. Department of Insurance. See endnote 1. 10. Governor Gavin Newsom. Executive Order N-13-23. Sep- 18. Department of Insurance. Company and Agent/Broker tember 21, 2023. https://www.gov.ca.gov/wp-content/ Information. Insurance Company Information. Search: uploads/2023/09/9.21.23-Homeowners-Insurance-EO. Lines of Insurance – Homeowners. https://www.insur- pdf. ance.ca.gov/01-consumers/120-company/. 11. Department of Insurance. “California’s Sustainable In- 19. Danielle Venton. “Insurance In California Is Chang- surance Strategy.” https://www.insurance.ca.gov/0400- ing. Here’s How It May Affect You.” KQED, November news/0100-press-releases/2023/upload/California-s-Sus- 13, 2023. Also, Department of Insurance. Fact Sheet: tainable-Insurance-Strategy-slides.pdf. Insurance Policy Count Data 2015-2021. https://www. insurance.ca.gov/01-consumers/200-wrr/upload/ CDI-Fact-Sheet-Residential-Insurance-Market-Poli- cy-Count-Data-December-2022.pdf. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 45 20. Note: There is inconsistent data about the number of 34. Note: These counties are Tuolumne (40 percent), Mar- surplus policies issued in California. For example, in iposa (38 percent), Nevada (30.6 percent), Calaveras testimony to the Assembly, the Surplus Line Association (29.5 percent), Alpine (26.9 percent), Amador (25.8%), of California said that surplus line brokers placed 42,198 El Dorado (20.8 percent), and Sierra (20.7 percent); all homeowners’ policies in 2018 and 25,138 homeowners of which were given a wildfire score of either “major,” policies in 2021. Data from the Department of Insurance “severe,” “or extreme” by the First Street Foundation, a reports that surplus brokers placed 19,794 homeown- producer of physical climate risk models. ers’ policies in 2018 and 12,776 homeowners policies in 2021. Source: Department of Insurance. See endnote 1. Also, Andrew Oxford. “Insurers Fleeing Fire Risks Fuel Califor- Source: Cliston Brown, Vice President of Public Affairs, nia Leader’s Rise.” Bloomberg Law, March 24, 2024. Surplus Line Association of California. March 8, 2023. Testimony to the California State Assembly Committee 35. Victoria Roach, President of the California FAIR Plan. on Insurance. Also, Department of Insurance. See end- March 13, 2024. Testimony to the Assembly Insurance notes 1 and 19. Committee. 21. Cliston Brown. See endnote 20. 36. Sharon Cornelissen, Douglas Heller, Michael De Long. “Exposed: A Report on 1.6 Trillion Dollars of Uninsured 22. Benjamin McKay, CEO, Surplus Line Association of American Homes.” The Consumer Federation of America. California. April 2, 2024. Personal communication with March 12, 2024. https://consumerfed.org/wp-content/ Commission staff. uploads/2024/03/Exposed-UninsuredHomes-1.pdf. 23. Insurance Code, Section 1765.2. 37. Michael Kolomatsky. “As Natural Disasters Get Worse, So Do Home Insurance Premiums.” New York Times, 24. Benjamin McKay. See endnote 22. October 12, 2023. 25. Insurance Code. Sections 1760-1780. Also, the Surplus 38. Note: The typical homeowner in many ZIP codes paid Line Association of California. Primer on the Non-Admit- premiums as low as .05 percent of home value. ted Market. https://www.slacal.com/general-informa- tion/primer-on-the-non-admitted-market. Source: Christopher Flavelle and Mira Rojanasakul. “Home Insurance Rates in America Are Wildly Distorted. 26. Department of Insurance. List of Approved Surplus Line Here’s Why.” New York Times, July 8, 2024. Insurers. https://www.insurance.ca.gov/01-consum- ers/120-company/07-lasli/lasli.cfm. 39. Insurance Information Institute. Average Premiums for Homeowners and Renters Insurance By State: 2021. 27. Note: Of the 141 surplus line insurers approved to sell https://www.iii.org/table-archive/21407. insurance in California, 121 are “foreign insurers,” based in another state and 20 are “alien insurers,” based in 40. Note: According to a study by Policygenius, home insur- another country. ance premiums increased by 21 percent in the U.S., 35 percent in Florida, 30 percent in Colorado, 27 percent in Source: The Surplus Line Association of California. Texas, 25 percent in Alabama, 11 percent in California, March 6, 2024. Written testimony to Assembly Insur- from May 2022 to May 2023. ance Committee. https://ains.assembly.ca.gov/system/ files/2024-03/letter-to-assembly-insurance-commit- Source: Michael Kolomatsky. See endnote 37. tee-031324.pdf. Also, Department of Insurance. See endnote 26. 41. Department of Insurance. See endnotes 1 and 19. 28. Cliston Brown, Vice President of Public Affairs, Surplus 42. Karen Collins, Vice President of Property and Environ- Line Association of California. April 2, 2024. Personal mental for the American Property Casualty Insurance As- communication with Commission staff. sociation. Little Hoover Commission Virtual Roundtable Meeting. June 6, 2024. Also, State Farm General Insur- 29. California FAIR Plan. Key Statistics & Data. https://www. ance Company. See endnote 2. Also, Iman Palm. “Allstate cfpnet.com/key-statistics-data/. stops accepting new property insurance applications in California.” KTLA, June 2, 2023. Also, Benjamin McKay, 30. Department of Insurance. See endnote 1. CEO and Executive Director, Surplus Line Association of California. April 25, 2024. Written testimony to the 31. Department of Insurance. See endnote 1. Commission. 32. Insurance Code, Sections 10091 et seq. 43. Department of Insurance. See endnote 11. 33. California FAIR Plan Property Insurance. About FAIR Plan. 44. Carmen Balber, Executive Director, Consumer Watchdog. https://www.cfpnet.com/about-fair-plan/. March 28, 2024. Testimony to the Commission. 46 | LITTLE HOOVER COMMISSION 45. Risk Information Inc. Property Insurance Report. April 8, 53. Victoria Roach. See endnote 35. 2024. Homeowners Multiperil Profit Margins. Page 5. 54. Victoria Roach. See endnote 35. 46. Note: Cumulative losses in California (-2.6) were less than just seven other states: Minnesota (-4), Colorado 55. Victoria Roach, President of the California FAIR Plan. (-8), Montana (-9.8), Iowa (-13.2), Nebraska (-14.9), March 13, 2024. Written testimony to the Assembly South Dakota (-16.1), Louisiana (-25.7). Insurance Committee. https://ains.assembly.ca.gov/sys- tem/files/2024-03/the-fair-plan-slide-presentation.pdf. Source: Risk Information Inc. See endnote 45. 56. Rex Frazier, President, Personal Insurance Federation 47. David D. Evans, Cody Webb, and Eric J. Xu. “Wild- of California. March 28, 2024. Written testimony to the fire catastrophe models spark the changes California Commission. Also, Amy Bach, Executive Director, United needs.” Milliman. October 28, 2019. https://www. Policyholders. March 28, 2024. Written testimony to the milliman.com/en/insight/wildfire-catastrophe-mod- Commission. els-could-spark-the-changes-california-needs. 57. California Code of Regulations, Section 2644.5. Also, Rex 48. David D. Evans, Cody Webb, and Eric J. Xu. See endnote Frazier. See endnote 56. Also, Armand Feliciano, General 47. Counsel, Public Policy Advocates, LLC. “FAIR Plan Little Hoover Commission Questions and Responses.” April 24, 49. Note: Property insurers earn a profit by charging their 2024. Personal communication to Commission staff. customers premiums for buying insurance coverage as well as by investing those premiums into other assets. 58. Department of Insurance. Workshop Draft Text of Reg- ulation: Catastrophe Modeling and Ratemaking REG- 50. Note: This increased demand for FAIR Plan policies has 2023-00010. March 14, 2024. https://www.insurance. to some degree been driven by the actions of admitted ca.gov/0250-insurers/0500-legal-info/0300-workshop-in- insurers in non-renewing policies or restricting the writ- surers/upload/Catastrophe-Modeling-and-Ratemak- ing of new policies. ing-Workshop-Draft-Text-of-Regulation.pdf. 51. Note: The FAIR Plan operates in “pool years,” which 59. National Association of Insurance Commissioners. Ca- remain open until the Plan’s Governing Committee tastrophe Models (Property). March 20, 2024. https:// approves a closure, at which point either a distribution, content.naic.org/cipr-topics/catastrophe-models-prop- assessment, or capital contribution of equity (such as a erty. reapplication to other pool years) of funds is made. A distribution or assessment must be approved by the In- 60. Rex Frazier. See endnote 56. surance Commissioner. The FAIR Plan assessed members $260 million in both 1994 and 1995, but between 1995 61. Victoria Roach, President, California FAIR Plan. April 25, and 2022 has distributed approximately $438.4 million 2024. Testimony to the Little Hoover Commission. to members when pool years were closed. 62. Ricardo Lara, Insurance Commissioner, California Depart- Source: Rudmose & Noller Advisors, LLC. “California ment of Insurance. Testimony to the Assembly Insur- Department of Insurance: Operational Assessment ance Committee. May 15, 2024. https://www.assembly. Report – California FAIR Plan Association.” June 15, 2022. ca.gov/media/assembly-insurance-committee-20240515. https://www.insurance.ca.gov/0250-insurers/0300-in- Also, Department of Insurance. “Commissioner Lara an- surers/0400-reports-examination/upload/CFPA-Oper- nounces next phase of Sustainable Insurance Strategy to ational-Assessment-Report.pdf. Also, Nancy Watkins, safeguard Californians’ access to insurance.” March 14, Robert Lee, and Rehan Siddique. “A Survey of Residual 2024. https://www.insurance.ca.gov/0400-news/0100- Market Plan Assessment and Recoupment Mechanisms.” press-releases/2024/release011-2024.cfm. Milliman. December 5, 2023. https://www.milliman. 63. Department of Insurance. See endnote 62. com/en/insight/a-survey-of-residual-market-plan-assess- ment-and-recoupment-mechanisms. 64. Department of Insurance. October 2, 2024. REG-2023- 00010: Catastrophe Modeling and Rate Making - Amend- 52. Note: In 2015, the FAIR Plan insured $50 billion worth ed Text of Regulation. Section 2648.5. https://legaldocs. of property. In June 204, the Plan’s exposure was $393 insurance.ca.gov/publicdocs/RegulationHome. billion. 65. Department of Insurance. “Initial Statement of Reasons: Source: Victoria Roach. See endnote 35. Also, California Catastrophe Modeling and Ratemaking. REG-2023- FAIR Plan. See endnote 29. Also, Armand Feliciano, Gen- 00010.” August 16, 2024. https://legaldocs.insurance. eral Counsel, Public Policy Advocates, LLC. “Factsheet: ca.gov/publicdocs/RegulationHome. About the FAIR Plan. 2024.” March 12, 2024. Personal communication to Commission staff. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 47 66. Consumer Watchdog. “Comments Regarding Third Work- 85. The National Association of Insurance Commissioners. shop Regarding the August 16, 2024 Proposed Regula- Reinsurance: Background. May 9, 2024. https://content. tion Text. (REG-2023-00010).” September 17, 2024. naic.org/insurance-topics/reinsurance. Also, Swiss Re. “The essential guide to reinsurance.” 2015. https://www. 67. Florida Commission on Hurricane Loss Projection swissre.com/dam/jcr:d06472ab-2625-48cf-8b4e-7c7a- Methodology. https://fchlpm.sbafla.com/. Also, https:// c8aa63f0/The-essential-guide-to-reinsurance.pdf. fchlpm.sbafla.com/media/mexdg4ge/20211101_struc- ture.pdf. Also, Florida Statutes, Chapter 627, Section 86. Anne Cottrell, Supervisor, Napa County. March 28, 2024. 0628. Public comment to the Commission. 68. Florida Statutes, Chapter 627, Section 0628.3(f). 87. Rex Frazier, President, Personal Insurance Federation of California. March 28, 2024. Testimony to the Commis- 69. Dona Simmons, Manager of Modeling Program, Flor- sion. ida State Board of Administration; and Stephen Paris, Chair, Florida Commission on Hurricane Loss Projection 88. American Property and Casualty Insurance Association. Methodology, and Teaching Professor and Coordinator of “Part II: Managing Wildfire Risk in the Wild, Wild West.” Actuarial Science, Department of Mathematics, Florida November 2022. https://www.apci.org/attachment/stat- State University. July 11, 2024. Personal communication ic/7104/. with Commission staff. 89. Rex Frazier. See endnote 56. 70. Florida Statutes. See endnote 68. Also, Florida Statutes, Chapter 627, Section 0628.2(b). 90. Insurance Code Section 10100.2(a)(1). 71. Florida Statutes, Chapter 627, Section 0628.3(g). 91. Victoria Roach. See endnote 35. 72. Dona Simmons and Stephen Paris. See endnote 69. 92. Victoria Roach. See endnote 61. 73. California State Association of Counties Insurance Work- 93. Department of Insurance. “Commissioner Lara announc- ing Group. May 30, 2024. Personal communication with es Sustainable Insurance Strategy to improve state’s Commission staff. market conditions for consumers.” September 21, 2023. https://www.insurance.ca.gov/0400-news/0100-press- 74. Heidi Hall, Supervisor, Nevada County. April 25, 2024. releases/2023/release051-2023.cfm. Also, Department Public comment to the Commission. of Insurance. Sustainable Insurance Strategy: Frequently Asked Questions. https://www.insurance.ca.gov/01-con- 75. Department of Insurance. See endnote 58. sumers/180-climate-change/SustainableInsuranceStrat- egy.cfm. 76. Megan Fan Munce. “Exclusive: California’s insurance commissioner isn’t sure when the insurance crisis will 94. Department of Insurance. “Commissioner Lara unveils end, but he has hope.” San Francisco Chronicle, July 25, next steps in his strategy to expand coverage options for 2024. Californians in areas of high wildfire risk.” June 12, 2024. https://www.insurance.ca.gov/0400-news/0100-press- 77. Sarah Heard, Director, MarketLab, The Nature Conser- releases/2024/release023-2024.cfm. vancy and Dave Jones, Center for Law, Energy & Environ- ment, UC Berkeley School of Law. June 7, 2024. Written 95. Ricardo Lara. See endnote 62. comments to the Commission. 96. Amy Bach. See endnote 56. 78. Department of Insurance. About the Department: Rate Regulation Branch. https://www.insurance.ca.gov/0500- 97. California Code of Regulations, Section 2644.1. about-us/02-department/075-rrb/. 98. Note: AB 2260 (Calderon, 2024) would have required the 79. California Wildfire & Forest Resilience Task Force. “Cal- FAIR Plan to report to Department of Insurance and the ifornia Wildfire and Landscape Resilience Interagency Legislature specified information on residential and com- Treatment Dashboard.” https://wildfiretaskforce.org/ mercial policy counts, progress on the clearinghouse, treatment-dashboard/. and efforts to improve customer services. 80. Sarah Heard and Dave Jones. See endnote 77. 99. Department of Insurance. Homeowners Insurance Com- parison Tool. https://interactive.web.insurance.ca.gov/ 81. Dave Jones. See endnote 8. apex_extprd/f?p=111:20. 82. Senate Bill 1060 (Becker), 2023-24 Regular Session. 100. Department of Insurance. 2023 California Proper- ty and Casualty Market Share Report. https://www. 83. California Code of Regulations, Section 2644.25. insurance.ca.gov/01-consumers/120-company/04-mrkt- 84. Ricardo Lara. See endnote 62. share/2023/upload/Top25grps2023.pdf. 48 | LITTLE HOOVER COMMISSION 101. Department of Insurance. Home Insurance Finder. 116. National Fire Protection Association. Firewise USA https://interactive.web.insurance.ca.gov/apex_ext- Program. State Listing of Participants. https://www. prd/f?p=400:50. Also, Danielle Venton. “Homeowners nfpa.org/education-and-research/wildfire/firewise-usa/ Insurance Market Stretched Even Thinner as 2 More firewise-usa-sites/state-listing-of-participants. Companies Leave California.” KQED, April 18, 2024. 117. Jacy Hyde, Executive Director. California Fire Safe Coun- 102. The National Association of Insurance Commission- cil. May 17, 2024. Personal communication with Com- ers. “NAIC Releases Homeowners Insurance Report for mission staff. 2021.” January 4, 2024. https://content.naic.org/article/ naic-releases-homeowners-insurance-report-2021. 118. Nancy Watkins, Principal and Consulting Actuary, Milli- man, Inc. June 6, 2024. Little Hoover Commission Round- 103. Department of Insurance. See endnote 19. Also, Depart- table on California’s Homeowners Insurance Market. ment of Insurance. Homeowners Multi-Peril Data: Premi- ums, Exposures and Annual Average Written Premiums 119. Michael O’Connell, President and Chief Executive by Experience Year, 2001-2017. https://www.insurance. Officer, Irvine Ranch Conservancy. June 6, 2024. Little ca.gov/0400-news/0200-studies-reports/0250-home- Hoover Commission Roundtable on California’s Home- owners-study/upload/A-Homeowners-2_v1-2.pdf. owners Insurance Market. 104. Department of Insurance. See endnote 19. 120. Steve Hawks, Senior Director for Wildfire, Insurance Institute for Business & Home Safety. May 10, 2024. 105. Department of Insurance. See endnote 1. Personal communication with Commission staff. 106. Department of Insurance. See endnote 100. 121. Insurance Code, Sections 1763, 10090(c) and 10093(a). 107. Department of Insurance. Rate Filing Approvals. Excel 122. Benjamin McKay, CEO and Executive Director, Surplus Format Reports. https://www.insurance.ca.gov/0250- Line Association of California. April 25, 2024. Testimony insurers/0800-rate-filings/0100-rate-filing-lists/rate-fil- to the Commission. ing-approvals/. 123. Department of Insurance. See endnote 26. 108. Alister Watt, Chief Product Officer, Insurance Institute for Business & Home Safety. June 6, 2024. Little Hoover 124. Benjamin McKay. See endnote 122. Commission Roundtable on California’s Homeowners 125. The Surplus Line Association of California. Surplus Line Insurance Market. Insurer (LASLI) Lookup. https://www.slacal.com/resourc- 109. Government Code, Section 51182. Also, Public Resourc- es/insurer-member-lookup. es Code, Section 4291. 126. Nancy Watkins. See endnote 118. 110. Dave Winnacker, Fire Chief, Moraga-Orinda Fire District. 127. Risk Modeling Advisory Workgroup. September 9, June 6, 2024. Little Hoover Commission Roundtable on 2023. Draft Report. https://osfm.fire.ca.gov/-/media/ California’s Homeowners Insurance Market. osfm-website/committes/wildfire-mitigation-adviso- 111. Frank Frievalt, Director, Cal Poly Wildland-Urban Inter- ry-committee/approved-risk-modeling-report-draft-sep- face Fire Institute. June 6, 2024. Little Hoover Commis- tember-5-2023.pdf. sion Roundtable on California’s Homeowners Insurance 128. Kate Gordon, Chief Executive Officer, California Forward. Market. June 6, 2024. Little Hoover Commission Roundtable on 112. Colorado General Assembly. House Bill 24-1091. California’s Homeowners Insurance Market. Fire-Hardened Building Materials in Real Property. 129. Karen Collins. See endnote 42. Nancy Watkins. See end- https://leg.colorado.gov/bills/hb24-1091. note 118. Dave Winnacker. See endnote 110. 113. Diane Burgis, Supervisor, Contra Costa County. May 30, 130. Risk Modeling Advisory Workgroup. See endnote 127. 2024. California State Association of Counties (CSAC) In- surance Working Group meeting with Commission staff. 131. Assembly Bill 642 (Friedman), Chapter 375, Statutes of 2021. 114. California Climate Investments. Nature-based Solutions Programs. https://www.caclimateinvestments.ca.gov/ 132. Nancy Watkins. See endnote 118. nature-based-solutions. 133. Nancy Watkins. See endnote 118. Also, Risk Modeling 115. California Natural Resources Agency. Restoring Forest Advisory Workgroup. See endnote 127. Health for Wildfire and Climate Resilience. https://re- sources.ca.gov/Initiatives/Forest-Stewardship. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 49 134. Department of Insurance. “Commissioner Lara and Cal 147. U.S. Census Bureau. 2022 American Community Survey Poly Humboldt to create nation’s first public wildfire 5-Year Estimates. Table B25037: Median Year Structure catastrophe model.” September 17, 2024. https://www. Built by Tenure. https://data.census.gov/table/ACS- insurance.ca.gov/0400-news/0100-press-releases/2024/ DT5Y2022.B25037?q=median%20year%20structure%20 release043-2024.cfm. Also, Ricardo Lara, Insurance Com- built&g=040XX00US06&moe=false. missioner, California Department of Insurance. “CalMat- ters One-on-One with California Insurance Commissioner 148. 2022 California Building Code, Title 24, Part 2, Chapter Ricardo Lara.” September 19, 2024. 7a, Materials and Construction Methods for Exterior Wildfire Exposure. https://codes.iccsafe.org/content/ 135. Florida Tech. Florida Public Hurricane Loss Model. CABC2022P1/chapter-7a-sfm-materials-and-construc- https://research.fit.edu/whirl/projects/florida-pub- tion-methods-for-exterior-wildfire-exposure. Also, 2022 lic-hurricane-loss-model-fphlm/. Also, Shahid Hamid, California Fire Code, Title 24, Part 9. https://codes. Ph.D., CFA. Chair and Professor of Finance, College of iccsafe.org/content/CAFC2022P1. Business, Florida International University (FIU); Director, Hurricane Loss Projection Model Project; and Direc- 149. Diane Burgis. See endnote 113. tor, Laboratory for Insurance, Financial and Economic 150. Emma. March 28, 2024. Public comment to the Commis- Research, International Hurricane Research Center, sion. FIU. Modified April 5, 2018. Power Point Presentation: The Florida Public Hurricane Loss Model. https://www. 151. Dore Bietz, Assistant Director, Office of Emergency icams-portal.gov/meetings/TCORF/ihc18/hamid.pdf. Services, Tuolumne County. Also, Rex Bone, Supervisor, Humboldt County. Also, Michelle Bushnell, Supervisor, 136. International Hurricane Research Center, Florida Inter- Humboldt County. Also, Chris Gallagher, Supervisor, national University. Florida Public Hurricane Loss Model. Lassen County. March 28, 2024. Public comments to the What is the FPHLM? https://fphlm.cs.fiu.edu/. Commission. 137. Shahid Hamid. See endnote 135. 152. Karen Collins. See endnote 42. 138. Shahid Hamid. See endnote 135. 153. Center for Insurance Policy and Research, Federal Alli- 139. International Hurricane Research Center. See endnote ance for Safe Homes. “Resilience Policy Resource Guide 136. and Retrofitting Program Playbook for State Insurance Regulators.” Pages 46-49. https://flash.org/wp-content/ 140. Amy Bach. See endnote 56. uploads/1/2024/03/2-20-24-Resilience-Playbook.pdf. 141. Consumer Watchdog. “Comments of Consumer Watch- 154. Strengthen Alabama Homes. https://www.strengthenal- dog at the Third Workshop Regarding Catastrophe abamahomes.com/. Modeling and Ratemaking (REG-2023-00010).” April 23, 2024. https://consumerwatchdog.org/wp-content/ 155. Fortified Homes. Incentives for Alabama. https://forti- uploads/2024/04/Consumer-Watchdog-Testimony-Ca- fiedhome.org/incentives-alabama/. tastrophe-Modeling-Workshop-04-23-24.pdf. 156. Florida Senate Bill 7028. July 1, 2024. https://www. 142. Consumer Watchdog. See endnote 141. flsenate.gov/Session/Bill/2024/7028. 143. Consumer Watchdog. See endnote 141. 157. My Safe Florida Home. https://mysafeflhome.com/. 144. Senate Bill 30 (Lara), Chapter 614, Statutes of 2018. 158. Florida Department of Revenue. Home Hardening. https://floridarevenue.com/HomeHardening/Pages/ 145. Climate Insurance Working Group, Department of Insur- default.aspx. ance. “Protecting Communities, Preserving Nature and Building Resiliency: How First-of-its-Kind Climate Insur- 159. Florida Office of Insurance Regulation. Premium Dis- ance Will Help Combat the Costs of Wildfires, Extreme counts for Hurricane Loss Mitigation. https://www.floir. Heat, and Floods.” July 22, 2021. https://www.insurance. com/Sections/PandC/HurricaneLossMitigation.aspx. ca.gov/cci/docs/climate-insurance-report-07-22-2021. 160. Note: Wildfire Partners is developing services for east pdf. Boulder County, although these services differ from 146. Laurie Johnson, PhD, FAICP, Principal, Laurie Johnson those available in the west. Consulting | Research. April 25, 2024. Testimony to the Source: Boulder County. Wildfire Mitigation Sales Tax Commission. Programs. https://bouldercounty.gov/disasters/wildfires/ mitigation/wildfire-mitigation-sales-tax-1a-programs/. 50 | LITTLE HOOVER COMMISSION 161. Wildfire Partners. Individual Home Assessments West 175. Christina Restaino, University of Nevada Reno Exten- Boulder County. https://wildfirepartners.org/west-boul- sion; Susan Kocher, University of California Cooperative der-county/individual-home-assessments/#tax-break. Extension; Nicole Shaw, Tahoe Resource Conservation District; Steven Hawks, California Department of Forestry 162. Boulder County. Wildfire Mitigation Tax 2023: Year and Fire Protection; Carlie Murphy, Tahoe Resource One Annual Report. https://assets.bouldercounty. Conservation District; and Stephen Quarles, University of gov/wp-content/uploads/2024/07/Wildfire-Mitiga- California Cooperative Extension. “Wildfire Home Retro- tion-Tax-2023-Annual-Report.pdf. fit Guide.” https://readyforwildfire.org/wp-content/up- loads/2024/03/wildfire-home-retrfito-guide-1.26.21.pdf. 163. Colorado Department of Revenue, Taxation Division. “In- come Tax Topics: Wildfire Mitigation Measures.” https:// 176. National Fire Protection Association. “Firewise USA: tax.colorado.gov/sites/tax/files/documents/ITT_Wild- How to Prepare Your Home From Wildfire Fact Sheet.” fire_Mitigation_Measures_Feb_2024.pdf. https://www.nfpa.org/en/education-and-research/wild- fire/preparing-homes-for-wildfire. 164. California Residential Mitigation Program. The Earth- quake Brace + Bolt Retrofit. https://www.californiaresi- 177. Department of Conservation. “The 1989 Loma Prieta dentialmitigationprogram.com/our-seismic-retrofit-pro- Earthquake.” https://www.conservation.ca.gov/cgs/ grams/the-retrofits/ebb-retrofit. earthquakes/loma-prieta. 165. Dave Jones. See endnote 8. 178. California Department of Forestry and Fire Protection. See endnote 4. Also, Captain Donald R. Parker, Oakland 166. Assembly Bill 38 (Wood), Chapter 391, Statutes of 2019. Office of Fire Services. “The Oakland-Berkeley Hills Fire: Also, Joint Exercise of Powers Agreement between An Overview.” http://www.sfmuseum.org/oakfire/over- California Governor’s Office of Emergency Services view.html. and California Department of Forestry and Fire Protec- tion. December 2, 2021. https://www.caloes.ca.gov/ 179. Department of Conservation. “Northridge Earthquake, wp-content/uploads/Hazard-Mitigation/Documents/ January 17, 1994.” https://www.conservation.ca.gov/ CWMP-JPA-Agreement.pdf. cgs/earthquakes/northridge. 167. Governor’s Office of Emergency Services. California 180. Rudmose & Noller Advisors, LLC. See endnote 51. Wildfire Mitigation Program Dashboard. https://www. caloes.ca.gov/office-of-the-director/operations/recov- 181. Note: In California, home insurers are required to offer ery-directorate/hazard-mitigation/california-wildfire-mit- property insurance. The Earthquake Authority provides igation-program/cwmp-about-page/. an avenue for participating insures to comply with this requirement. Insurers may also provide their own earth- 168. Daniel Berlant, State Fire Marshall, California Depart- quake policies. The Earthquake Authority is financed ment of Forestry and Fire Protection. June 6, 2024. Little solely through insurers’ contributions, policyholder Hoover Commission Roundtable on California’s Home- premiums and investment returns. It receives no money owners Insurance Market. from the state budget. 169. Rex Bone. See endnote 151. Source: California Earthquake Authority. “History of the California Earthquake Authority.” https://www.earth- 170. Nancy Watkins. See endnote 118. quakeauthority.com/about-cea/cea-history. 171. Mark Ghilarducci, President & CEO, Emergent Global 182. California Department Forestry and Fire Protection. See Solutions, Inc. April 25, 2024. Written testimony to the endnote 4. Commission. 183. Employment Development Department. “The Economic 172. Insurance Institute for Business & Home Safety. “Wild- Impact of the October 2007 Southern California Wild- fire Prepared: A Program of IBHS.” https://wildfirepre- fires.” December 2007. https://labormarketinfo.edd. pared.org/wp-content/uploads/WPH-How-To-Prepare- ca.gov/specialreports/SoCalFires-Oct2007.pdf. My-Home-Checklist.pdf. 184. California Department of Forestry and Fire Protection. 173. Department of Insurance. “Safer From Wildfires.” “California Fire Siege 2007: An Overview.” https://web. https://www.insurance.ca.gov/01-consumers/200-wrr/ archive.org/web/20181119041829/http://www.fire. Safer-from-Wildfires.cfm. ca.gov/fire_protection/downloads/siege/2007/Over- 174. United Policyholders. “IBHS WRAP State Partners view_CompleteFinal.pdf. Comparison.” https://uphelp.org/wp-content/up- 185. National Institute of Standards and Technology, U.S. loads/2022/03/WRAP-Standards-Comparison-Chart.pdf. Department of Commerce. “A Case Study of a Commu- nity Affected by the Witch and Guejito Fires.” April 2009. https://nvlpubs.nist.gov/nistpubs/Legacy/TN/nbstechni- calnote1635.pdf. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 51 186. California Department of Forestry and Fire Protection. 197. Allstate. “Allstate Raising Insurance Prices Given Cost “2017 Incident Archive.” https://www.fire.ca.gov/inci- Inflation.” November 2, 2022. https://www.allstate- dents/2017. investors.com/static-files/83cf2886-4f18-4783-8ad0- 4d9d35492ae0. 187. California Department of Forestry and Fire Protection. “2018 Incident Archive.” https://www.fire.ca.gov/inci- 198. State Farm General Insurance Company. “California New dents/2018. Business Update.” May 26, 2023. https://newsroom. statefarm.com/state-farm-general-insurance-compa- 188. Senate Committee on Insurance and Joint Legislative ny-california-new-business-update/. Committee on Emergency Management. “Drought, Climate Change and Fire: How is the California Home- 199. Megan Fan Munce. See endnote 2. owners’ Insurance Market Responding?” March 20, 2018. https://sins.senate.ca.gov/content/hear- 200. Matthew Kupfer. “After State Farm’s and Allstate’s exits, ings/2023-2024/2017-18. Farmers Insurance sets limits in California.” The San Fran- cisco Standard, July 7, 2023. 189. Lloyd Dixon and Flavia Tsang, RAND Corporation, and Gary Fitts, GreenwareTech. “The Impact of Changing 201. Matthew Kupfer. See endnote 2. Wildfire Risk on California’s Residential Insurance Mar- 202. Matthew Kupfer. “Home insurance crisis: Safeco to drop ket.” August 2018. https://www.rand.org/content/dam/ policies across San Francisco, East Bay.” The San Francis- rand/pubs/external_publications/EP60000/EP67670/ co Standard, August 3, 2023. RAND_EP67670.pdf. 203. Natalie Todoroff. See endnote 2. 190. Governor’s Office of Planning and Research. “Final Report of the Commission on Catastrophic Wildfire 204. Governor Gavin Newsom. See endnote 10. Cost and Recovery.” June 17, 2019. https://lci.ca.gov/ docs/20190618-Commission_on_Catastrophic_Wild- 205. Department of Insurance. See endnote 93. fire_Report_FINAL_for_transmittal.pdf. 206. Jen Frost. “The Hartford latest to pull back from Califor- 191. Department of Insurance. “Growing need for FAIR nia homeowners insurance.” Insurance Business Maga- Plan leads Insurance Commissioner to order increased zine, January 24, 2024. coverage options.” November 14, 2019. https://www. 207. Department of Insurance. “Text of Regulation: insurance.ca.gov/0400-news/0100-press-releases/2019/ Complete Property and Casualty Rate Application. release089-19.cfm. REG-2019-00025.” February 9, 2024. https://legal- 192. Department of Forestry and Fire Protection. “2020 Inci- docs.insurance.ca.gov/CyberDOCS/autopapiact. dent Archive.” https://www.fire.ca.gov/incidents/2020. asp?AppINT=-1&mode=no&autopapiurl=%2FCy- berDOCS%2FLibraries%2FDOCS%5FWEB%2FCom- 193. Department of Insurance. “Virtual Homeowners’ Insur- mon%2Fviewdocact%2Easp%3Flib%3DDOCS%5F- ance Investigatory Hearing.” October 19, 2020. https:// WEB%26doc%3D359768%26rendition%3Dhtml%26nof- www.insurance.ca.gov/01-consumers/200-wrr/Virtu- rames%3Dyes&SCICO=false. al-HO3-Investigatory-Hearing.cfm. 208. State Farm General Insurance Company. See endnote 2. 194. Climate Insurance Working Group. See endnote 145. 209. Department of Insurance. See endnote 62. 195. Department of Insurance. “Commissioner Lara and state emergency agencies issue ‘Safer from Wildfires’ 210. Assembly Insurance Committee. Oversight Hearing on framework to protect existing homes and communities.” the California FAIR Plan. March 13, 2024. https://ains. February 14, 2022. https://www.insurance.ca.gov/0400- assembly.ca.gov/2024-hearings/2024-information- news/0100-press-releases/2022/release015-2022.cfm. al-hearings. 196. Department of Insurance. “Final Text of Regulation: 211. Department of Insurance. Rate Filing Search Results. Mitigation in Rating Plans and Wildfire Risk Models. https://interactive.web.insurance.ca.gov/apex_extpr REG-2020-00015.” https://legaldocs.insurance.ca.gov/ d/f?p=186:2:1660732398421::NO:RP:P2_COMPA- CyberDOCS/autopapiact.asp?AppINT=-1&mode=no&au- NY_NAME,P2_FILE_NUM,P2_FILING_TYPE,P2_GROUP_ topapiurl=%2FCyberDOCS%2FLibraries%2FDOCS%5F- NUM,P2_LINE_CODE,P2_LINE_TYPE,P2_NAIC_NUM,P2_ WEB%2FCommon%2Fviewdocact%2Easp%3Flib%3D- PERCENT_CHANGE_REQUEST,P2_PERCENT_FIL- DOCS%5FWEB%26doc%3D350963%26rendition%3Dht- TER_TYPE,P2_PN_FROM_DATE,P2_PN_TO_DATE,P2_ ml%26noframes%3Dyes&SCICO=false. Also, Department PROGRAM,P2_SERFF_NUM:Tokio%20Marine%20 of Insurance. “Commissioner Lara submits first-in-nation America%20Insurance%20Company,,,,,PERSONAL. wildfire safety regulation to drive down cost of insur- ance.” September 7, 2022. https://www.insurance. ca.gov/0400-news/0100-press-releases/2022/re- lease064-2022.cfm. 52 | LITTLE HOOVER COMMISSION 212. California Department of Finance. “Trailer Bill: Stream- lined Review Pending Insurance Filings.” May 28, 2024. Also, Governor Gavin Newsom. “Governor Newsom sup- ports insurance reform proposal.” June 12, 2024. https:// www.gov.ca.gov/2024/06/12/governor-newsom-sup- ports-insurance-reform-proposal/. 213. Department of Insurance. See endnote 94. 214. Suzanne Phan. “17,000 Liberty Mutual customers in CA to lose fire insurance policy: Here’s what you need to know.” ABC7 News, August 28, 2024. 215. Department of Insurance. “Commissioner Lara moves to implement new insurance rate review reforms.” August 9, 2024. https://www.insurance.ca.gov/0400- news/0100-press-releases/2024/release035-2024.cfm. 216. Benjamin McKay. See endnote 42. BUILDING A STRONGER HOME INSURANCE MARKET FOR CALIFORNIA | 53 54 | LITTLE HOOVER COMMISSION Little Hoover Commission Members CHAIR PEDRO NAVA | Santa Barbara JOSÉ ATILIO HERNÁNDEZ | Burbank Appointed to the Commission by Speaker of the Assembly Appointed by Speaker of the Assembly Anthony Rendon John Pérez in April 2013 and reappointed by Speaker in April 2023. Founder and CEO of IDEATE California, a of the Assembly Anthony Rendon in 2017 and again public relations and policy management firm. Also, founder in 2021. Government relations advisor. Former State and Board Chairman of ideateLABS. Former Director for Assemblymember from 2004 to 2010, civil litigator, External Affairs and Community Relations for ConnectEd: deputy district attorney and member of the state Coastal The California Center for College and Career. Commission. Elected chair of the Commission in March 2014. JASON JOHNSON | Napa Appointed by Governor Newsom in June 2023. Member VICE CHAIR ANTHONY CANNELLA | Ceres of the Land Trust of Napa County Board of Trustees and Appointed to the Commission by the Senate Rules Horary Commander of Travis Air Force Base. Former Committee in March 2022. Civil engineer and principal with Managing Partner at Founders Den. Founder and former Northstar Engineering Group. Former State Senator from CEO at August Home Inc. 2010 to 2018. Previously served on the Ceres City Council and was twice elected mayor of that city. Elected Vice Chair SEN. DAVE MIN | Irvine of the Commission in July 2023. Appointed to the Commission by the Senate Rules Committee in September 2021. Elected in November 2020 DION ARONER | Berkeley to represent the 37th Senate District. Represents Anaheim Appointed to the Commission by the Senate Rules Hills, Costa Mesa, Huntington Beach, Irvine, Laguna Beach, Committee in April 2019. Partner for Aroner, Jewel, and Laguna Woods, Lake Forest, Newport Beach, Orange, Ellis. Former State Assemblymember from 1996 to 2002, Tustin, and Villa Park. chief of staff for Assemblymember Tom Bates, social worker for Alameda County, and the first female president ASM. LIZ ORTEGA | San Leandro of Service Employees International Union 535. Appointed to the Commission by Speaker of the Assembly Anthony Rendon in March 2023. Elected in November DAVID BEIER | San Francisco 2022 to represent the 20th Assembly District. Represents Appointed to the Commission by Governor Edmund G. Hayward, San Leandro, most of Union City, portions Brown Jr. in June 2014 and reappointed in January 2018. of Dublin and Pleasanton, and several unincorporated Managing director of Bay City Capital. Former senior officer communities. of Genentech and Amgen, and counsel to the U.S. House of Representatives Committee on the Judiciary. JANNA SIDLEY | Los Angeles Appointed to the Commission by Governor Edmund G. ASM. PHILLIP CHEN | Yorba Linda Brown Jr. in April 2016 and reappointed in February 2020. Appointed to the Commission by Speaker of the Assembly Partner at Ichor Strategies and appointed to the Board Anthony Rendon in October 2021. Elected in November of the Los Angeles City Employee Retirement System 2016 to represent 55th District. Represents portions of Los (“LACERS”). Former general counsel at the Port of Los Angeles, Orange and San Bernardino counties and the Angeles and city attorney at the Los Angeles City Attorney’s cities of Brea, Chino Hills, Diamond Bar, La Habra, Industry, Office. Placentia, Rowland Heights, Walnut, West Covina and Yorba Linda. SEN. SCOTT WILK | Santa Clarita Appointed to the Commission by the Senate Rules GIL GARCETTI | Los Angeles Committee in April 2023. Elected in November 2016 to Appointed to the Commission by Governor Gavin Newsom represent the 21st Senate District. Represents communities in November 2021. Professional photographer and author in the Antelope, Santa Clarita, and Victor Valleys. of ten books. Former Los Angeles County District Attorney, Full biographies are available on the Commission’s teaching Fellow at Harvard University’s Kennedy School, website at www.lhc.ca.gov. and president of the California Science Center Foundation’s Board of Trustees. “DEMOCRACY ITSELF IS A PROCESS OF CHANGE, AND SATISFACTION AND COMPLACENCY ARE ENEMIES OF GOOD GOVERNMENT.” By Governor Edmund G. “Pat” Brown, addressing the inaugural meeting of the Little Hoover Commission, April 24,1962, Sacramento, California Milton Marks Commission on California State Government Organization and Economy www.lhc.ca.gov