By Alex Cesta
On June 6, 2024, the Little Hoover Commission held a roundtable discussion to continue its investigation into the growing crisis of homeowners insurance availability in California. Experts from state agencies, insurance industry representatives, and consumer advocacy groups met and discussed how the state can address the increasing difficulty that California homeowners face to secure insurance in fire-prone areas. The conversation focused on the Sustainable Insurance Strategy (SIS), an initiative by the California Department of Insurance (CDI), and the use of Catastrophe (CAT) models in determining and quantifying natural disaster risk.
Insurance Industry Members Support Sustainable Insurance Strategy (SIS)
CDI Commissioner Ricardo Lara introduced the SIS to address the growing insurance crisis by modernizing risk assessment and pricing mechanisms. SIS employs CAT models to evaluate wildfire risk more accurately and encourages insurers to account for mitigation efforts when setting rates. The strategy aims to stabilize the insurance market and boost availability for homeowners.
Nancy Watkins, an actuary with Milliman Inc., explained that insurers face challenges due to insufficient wildfire data. She stated, “insurers do not understand enough about the wildfire risk to put as much of their capital at risk as we need them to.” Watkins believes that proper risk-based pricing would help address availability issues, noting, “When the risks are more properly priced and insurance companies feel that they can get adequate premiums, many of the availability issues will go away.”
Laurna Castillo, Senior Vice President at CSAA Insurance Group, also shared her perspective on SIS and the challenges it seeks to address. Castillo noted that her company offers premium discounts and guaranteed renewals for homeowners who qualify for wildfire preparedness certifications. However, very few homeowners have taken advantage of these programs. Castillo stated, “We have only had less than five property owners actually qualify for the discount and the prepared home [program].” She identified homeowners opting for the California FAIR Plan and the limited availability of contractors for wildfire mitigation work as barriers to more widespread pursuit of the company’s discounts.
Catastrophe Models and Mitigation
The role of CAT models was a central topic at the roundtable, with multiple speakers emphasizing their importance in assessing risk and determining insurance pricing. Sarah Heard, Director of MarketLab at The Nature Conservancy, stressed the need for these models to evolve to better reflect the extensive mitigation efforts being implemented throughout the state. “We are spending collectively in this state so much money on mitigation and it isn’t making a difference,” Heard stated. She urged for greater recognition of mitigation actions at both the individual and community levels, noting that insurers have been slow to incorporate these efforts into pricing models.
Public Concerns and Data Transparency
During the public comment period, Carmen Balber, Executive Director of Consumer Watchdog, raised concerns about the ongoing difficulties homeowners face even after taking steps to mitigate wildfire risks. Balber pointed out many homeowners have taken steps to mitigate, yet they still don’t see a light at the end of the tunnel when it comes to securing affordable insurance. She emphasized the importance of a public and transparent Wildfire Catastrophe Model to ensure fairness and build trust in the system. She also expressed her appreciation for the speakers’ focus on a transparent data to improve CAT models. Balber stated that a transparent system is necessary so that “both community members and regulators can be confident in the predictions of these models, ensuring that they’re fair and unbiased, especially since the science is so new.”