Story by Trisha Chakraborty
Staff Writer
Photo by Linda Yun
Editor-in-Chief
The California Department of Insurance (CDI) presented California Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy to the South Pasadena City Council at its meeting on Wednesday, Aug. 21. CDI Outreach Analyst Dystanie Flores and Deputy Commissioner Julia Juarez explained how the reform strategy is working towards restabilizing the state’s volatile wildfire insurance market.
California’s insurance crisis is the result of climate change and global inflation. As the risk of wildfires in the state increases, insurance companies are raising prices to meet their financial obligations, and in many instances, they are refusing to insure homes altogether in order to cut their losses. Homeowners are left forced to either pay high premiums or transfer to the California Fair Access to Insurance Requirements (FAIR) Plan, the state’s last resort wildfire insurance for high-risk homes.
However, the FAIR plan is not a permanent solution, as it was designed by the state as a temporary safety net for homeowners unable to find wildfire insurance in the traditional marketplace.
“The FAIR plan has increased to 3 percent of California’s insurance market — becoming the insurer of first resort, not last resort, for many,” the presentation stated.
Under the Sustainable Insurance Strategy, insurance companies will commit to conducting a certain proportion of their business in wildfire-distressed areas identified by Lara. Additionally, the reform will incorporate new catastrophe models that aim to give more accurate risk pricing in order to improve insurance pricing transparency and fairness.
“What [insurance companies] told us was that they had too much risk,” Juarez explained. “So if we as homeowners then work on mitigating that risk [of wildfire], we can show them that we’re a good bet [to be covered by insurance].”
The CDI stated that lowering wildfire risk can look like safeguarding homes and businesses with fire-rated roofs, protecting immediate surroundings by clearing excess vegetation, and protecting entire neighborhoods by forming Fire Risk Reduction Communities.
Mayor Evelyn Zneimer, who represents the Monterey Hills area (District 1), pointed out that many South Pasadena residents are already taking these actions.
“My district is zoned as high fire risk,” Zneimer said. “A lot of my constituents have lost their insurance and they are now paying triple or quadruple despite the fact that we mitigate the clearing of bushes and fireproofing and we change our roof — it doesn’t matter. How would you [the CDI] help specifically?”
Juarez echoed Zneimer’s concerns and emphasized they only support the greater need for the Sustainable Insurance Strategy.
“Even though … communities like yours are getting all of that together as a whole, we see that right now that’s not enough,” Juarez said.
Insurance companies will start looking for and prioritizing communities such as South Pasadena that follow the Insurance Commissioner’s “Safer from Wildfire” regulations after the CDI implements catastrophe modeling.
The CDI is unable to legally require companies to insure homes, but the new strategy aims to encourage companies to provide coverage.
“We’re trying to find solutions working with the [insurance] industry, working with the governor, working with state agencies to find ways that we can actually do something, so that homeowners are able to then purchase insurance that is agreeable to them, but they can also afford,” said Juarez.
The CDI plans to implement all necessary measures by December 2024.
