California Department of Insurance to Hold Public Discussion on Mitigation in Rating Plans and Wildfire Risk Models

The California Department of Insurance has invited the public to participate in a pre-notice discussion regarding a contemplated addition to the California Code of Regulations (“CCR”) dealing with mitigation in rating plans and wildfire risk models. The web-based virtual event will be held on March 30, 2021 at 1:00 pm (PST).

The Proposed Regulation

The regulation open to public comment touches upon all of the following:

  1. Incentivizing individual and community mitigation efforts by requiring consideration of property- and community-level mitigation against wildfire risk;
  2. Reducing the risk of loss posed by wildfires;
  3. Improving accuracy in the classification of wildfire risk and the resulting rates and premiums;
  4. Increasing transparency in, and consumer awareness of, insurers’ rating and/or scoring of wildfire risk;
  5. Enhancing consumer protection by establishing a consumer appeals process;
  6. Reducing unfair discrimination by enhancing consistency in insurers' wildfire rating practices and/or risk scoring practices; and
  7. Potentially improving availability and affordability of property-casualty insurance for communities and properties where wildfire mitigation measures have been implemented.

Participants in the pre-notice discussion will be asked to offer their specific questions about—and potential alternatives to—the proposed regulation.

A Deeper Dive

If adopted, the proposed regulation would require insurers to implement rates based on a compliant rating plan or wildfire risk model, defined as “any computer-based, map-based, or other measurement or simulation tool used by an insurer to segment rates, create a rate differential, or determine the premium discount or surcharge for residential or commercial structures.” Of note, any insurer looking to modify its rates would have to provide its wildlife risk model along with a new rate application to be filed no later than January 1, 2023.

At its core, the proposed regulation seeks to prohibit an insurer from using a rating plan or wildfire risk model that does not consider and take into account certain mandatory factors, including (1) community-level mitigation efforts and (2) property-level mitigation efforts undertaken with respect to an individual property being assessed for risk. Optional wildfire-related factors that insurers can weigh when developing rating plans or risk models are fuel, slope, access, distance to other high-risk areas, aspect, structure characteristics and wind.

Should the proposed regulation ultimately take effect, carriers will have to be mindful of several details and mandates related to their initial rate change applications, including the incorporation of wildfire loss data and the provision of specific wildfire risk model scores. Of course, these are items that the insurance regulatory professionals at Michelman & Robinson, LLP can assist with.

In the meantime, the full text of the proposed regulation can be found here, and M&R reminds anyone interested that the pre-notice discussion (which we will monitor and report on) is not a formal public hearing; as such, public comments will not be included in any rulemaking record.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.