In a significant step to address the ongoing home insurance crisis, California has enacted a new regulation mandating that insurance companies provide policies in wildfire-prone areas. Announced by California Insurance Commissioner Ricardo Lara, this rule will ensure that insurers must offer coverage to high-risk regions if they intend to operate within the state. This historic regulation aims to mitigate the impact of rising wildfire risks exacerbated by climate change.

The regulation requires insurers to increase their coverage in high-risk areas by 5% every two years until they achieve at least 85% of their statewide market share in those regions. For instance, an insurer holding a 20% market share in California would need to write a minimum of 17% of the policies in wildfire-prone areas. This initiative comes as major companies like Allstate and State Farm had ceased writing new policies in California, citing severe losses from wildfires and other disasters as the reasons for their exodus ([The Guardian](https://www.theguardian.com/us-news/2024/dec/31/california-wildfire-home-insurance), [Newsweek](https://www.newsweek.com/home-insurance-changing-california-2007993)).

In turn, this new regulation allows insurers to pass on the costs related to reinsurance to California consumers. Traditionally, insurance companies acquire reinsurance to shield themselves from large payouts after catastrophic events. According to Lara’s office, California is unique in not permitting these reinsurance costs to factor into premiums ([The Hill](https://thehill.com/policy/energy-environment/5061625-california-insurers-regulations-high-risk-areas-coverage/)).

While proponents argue that this step ensures a more reliable insurance market for residents who's property is at risk, critics warn that the approach could lead to a sharp increase in premiums—potentially by as much as 40%. Jamie Court, president of Consumer Watchdog, voiced skepticism regarding the regulation: "This plan is of the insurance industry, by the insurance industry, and for the industry," and pointed out the absence of an impact analysis on costs to consumers ([The Guardian](https://www.theguardian.com/us-news/2024/dec/31/california-wildfire-home-insurance)).

Lara emphasized that this regulation is a part of a broader Sustainable Insurance Strategy aimed at building a resilient market capable of withstanding the increasing impacts of climate change. The move not only addresses immediate concerns exposed by the recent surge in wildfires but also aims to stabilize the insurance market for the future. Insurers will be compelled to use a single risk model, resisting the temptation to "model-shop" between various underwriting strategies ([The Hill](https://thehill.com/policy/energy-environment/5061625-california-insurers-regulations-high-risk-areas-coverage/)).

As these mandates await review from the California Office of Administrative Law, residents and industry experts alike remain cautiously optimistic about the regulation's potential to reshape the insurance landscape in California amidst growing environmental threats.