Heating Up: How the Department of Insurance is Facing Climate Change and Insurance Costs

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By Jennifer Wilczynski

On May 20, 2020, the Department of Insurance (DOI) Climate Insurance Working Group issued draft recommendations regarding state policies that are directly related to major climate change issues, including extreme heat, flood and sea levels rising, and wildfires. The recommendations included launching an extreme heat risk campaign targeted at local and state governments, decisionmakers, senior public health officials, emergency management and sustainability staff, as well as a process for mitigating extreme heat costs. Regarding floods and sea level rising, the working group recommended maintaining a digital database of any previously flooded properties that is searchable and potentially required for property disclosures, and development of maps of high flood risk areas for the purpose of discouraging development in those areas. The working group additionally recommended increasing community-level mitigation through the creation of Climate Hazard Abatement Districts, encouraging “Firewise Communities,” and making other changes to planning and zoning laws.

The DOI Climate Insurance Working Group’s recommendations regarding wildfires and insurance included the development of the long term “high fire risk/severity zones” and regularly updated maps on an online database. It was noted that these maps need to be expanded to include existing urban landscapes as well as a factor in future predictions for climate change and land-use trends. The working group also urged Commissioner Lara to develop “additional performance standards and data collection to enhance [the] understanding of California Firewise communities.” The Firewise Program, created by the National Fire Protection Association (NFPA), teaches people how to adapt to living with wildfire and encourages neighbors to work together to prevent losses. The working group calls for strengthening the documentation of Firewise Program successes that incorporate nature-based strategies.

Similarly, a June 1, 2020 report from the group Ceres, an environmental nonprofit, encouraged the development of a database of insurance products that reduce emissions and result in greater sustainability. On July 14, 2020, Commissioner Lara announced the launch of the Climate Smart Insurance Products Database, which provides a consumer-oriented list of green insurance policies. DOI created this database to assist consumers in seeking and understanding the effects of climate change on various insurance policies. The intent of DOI is to encourage insurance policy innovation across various insurance products, including commercial, homeowner’s, and car insurance. The database lists over 400 products currently available to consumers and businesses that provide options like green-rebuild coverage, a pathway to building back stronger and more energy-efficient, and lower-emission buildings and vehicles; lower premiums for low-emission vehicles; discounts for green energy use and energy efficiency certification; discounts for businesses who operate hydrogen and hybrid electric buses; and policies that protect low-income communities and natural ecosystems. According to the press release, the database was first previewed in July 2020 at an international virtual conference with the United Nations Finance Initiative: Principles for Sustainable Insurance, which included over 700 participants from 60 countries.

Shortly after the database rollout, on August 13, 2020, Commissioner Lara was named the Co-Chair of the National Association of Insurance Commissioners (NAIC) Climate and Resiliency Executive Task Force. This Task Force will address climate risks that insurance companies and consumers face nationwide. Earlier this year, the NAIC identified climate risk as a top strategic focus for insurance regulators in 2020. Climate change has driven the cost of insurance up in California, mostly due to the increasing destruction from California wildfires. Last year, the Department of Insurance data showed that insurance is becoming harder to obtain in high wildfire-risk areas. The recent actions by the Department of Insurance and Commissioner Lara to focus on sustainability and green insurance are the state’s latest efforts to mitigate the rising costs of insurance and to ensure coverage for all Californians.

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