Existing law creates the Department of Insurance and prescribes the departments powers and duties. Existing law generally regulates the business of insurance in the state, including the underwriting and ongoing monitoring of insured risks. Existing law generally requires an insurer or insurance producer to have underwriting guidelines that establish the criteria and process under which an insurer makes its decision to provide or to deny coverage.

If a property insurer uses risk models for underwriting purposes, this bill would authorize the models to account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities. The bill would require an insurer using risk models for underwriting purposes, as specified, beginning January 15, 2026, and on or before each January 15 thereafter, to provide to the department information necessary to ensure compliance with those risk model requirements, as specified. report to the department the extent to which models used for underwriting purposes account for specified categories of risk mitigation, and other specified information. The bill would require the department to post the information contained in the report, excluding any confidential or proprietary information, on its internet website.

The bill would make related findings and declarations and would state the intent of the Legislature to do specified actions, including ensuring that actions taken to reduce wildfire risks and associated property losses are considered by property insurers in their underwriting evaluations by requiring that any models used for underwriting account for the identified categories of risk mitigation.

Existing law creates the Department of Insurance and prescribes the departments powers and duties. Existing law generally regulates the business of insurance in the state, including the underwriting and ongoing monitoring of insured risks. Existing law generally requires an insurer or insurance producer to have underwriting guidelines that establish the criteria and process under which an insurer makes its decision to provide or to deny coverage.

If a property insurer uses risk models for underwriting purposes, this bill would require authorize the models to account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities. The bill would require an insurer, insurer using risk models for underwriting purposes, as specified, beginning January 15, 2026, and on or before each January 15 thereafter, to provide to the department information necessary to ensure compliance with those risk model requirements, as specified.

The bill would make related findings and declarations and would state the intent of the Legislature to do specified actions, including ensuring that actions taken to reduce wildfire risks and associated property losses are considered by property insurers in their underwriting evaluations by requiring that any models used for underwriting account for the identified categories of risk mitigation.

Existing law creates the Department of Insurance and prescribes the departments powers and duties. Existing law generally regulates the business of insurance in the state, including the underwriting and ongoing monitoring of insured risks. Existing law generally requires an insurer or insurance producer to have underwriting guidelines that establish the criteria and process under which an insurer makes its decision to provide or to deny coverage.

If a property insurer uses risk models for underwriting purposes, this bill would require the models to account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities. The bill would authorize the department to examine models used for underwriting purposes to ensure compliance with that risk model requirement and to issue orders that are necessary to ensure compliance. require an insurer, beginning January 15, 2026, and on or before each January 15 thereafter, to provide to the department information necessary to ensure compliance with those risk model requirements, as specified.

The bill would make related findings and declarations and would state the intent of the Legislature to do specified actions, including ensuring that actions taken to reduce wildfire risks and associated property losses are considered by property insurers in their underwriting evaluations by requiring that any models used for underwriting account for the identified categories of risk mitigation.

Existing law creates the Department of Insurance and prescribes the departments powers and duties. Existing law generally regulates the business of insurance in the state, including the underwriting and ongoing monitoring of insured risks. Existing law generally requires an insurer or insurance producer to have underwriting guidelines that establish the criteria and process under which an insurer makes its decision to provide or to deny coverage.

If a property insurer to employ uses risk models for underwriting purposes that purposes, this bill would require the models to account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities. The bill would authorize the department to examine models used for underwriting purposes to ensure compliance with that risk model requirement and to issue orders that are necessary to ensure compliance.

Existing law creates the Department of Insurance and prescribes the departments powers and duties. Existing law generally regulates the business of insurance in the state, including the underwriting and ongoing monitoring of insured risks. Existing law generally requires an insurer or insurance producer to have underwriting guidelines that establish the criteria and process under which an insurer makes its decision to provide or to deny coverage.

This bill would require a property insurer to employ risk models for underwriting purposes that account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, and defensible space. space, and fire prevention activities. The bill would authorize the department to examine underwriting to ensure compliance with that risk model requirement and to issue orders that are necessary to ensure compliance.

Existing law provides for an Insurance Commissioner elected by the people, as specified, to no more than 2 4-year terms. Existing law authorizes the commissioner to employ individuals necessary to discharge the duties imposed upon the commissioner by law.

This bill would make technical, nonsubstantive changes to that authorization.

Date of Hearing: June 26, 2024

ASSEMBLY COMMITTEE ON INSURANCE

Lisa Calderon, Chair

SBPCA Bill Id:SB 1060

Author:(Becker) – As Amended Ver:June 18, 2024

SENATE VOTE: 29-8

SUBJECT: Property insurance underwriting: risk models

SUMMARY: Attempts to address insurers using risk models for underwriting purposes. Specifically, this bill:

1. Allows a property insurer who uses risk models for underwriting to account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities for properties, communities, and landscapes.
   
2. Requires an insurer using risk models for underwriting purposes (considering factors in (1) above) to report to the California Department of Insurance (CDI) beginning January 15, 2026 and on or before January 15 thereafter on:
   1. Extent to which models used for underwriting purposes account for the categories of risk mitigation (identified in (1) above) including:
      1. Types and numbers of policy applications and renewals by ZIP Code, that account for categories of risk mitigation identified in (1) above; and,
      2. Any other information CDI deems necessary.
3. Requires CDI to post the report, minus confidential or proprietary information, on their website.
4. Provisions sunset on January 1, 2036.
5. Defines “defensible space” as the same meaning as defined in Section 51177 of the Government Code.
6. Defines “fire prevention activities” as the same meaning as defined in Section 4124 of the Public Resources Code.
7. Defines “hazardous fuel reduction” as the same meaning as defined in Section 4464 of the Public Resources Code.
8. Defines “home hardening” as the same meaning as defined in Section 4291.5 of the Public Resources Code.
9. Makes findings and declarations.

EXISTING LAW:

1. Provides for the regulation of insurers, agents and brokers, and other insurance-like organizations by the Insurance Commissioner, and imposes a broad range of financial solvency, licensing and market behavior requirements, as set forth in the Insurance Code.
2. Establishes the Wildfire and Forest Resilience Action Plan and the Wildfire and Forest Resilience Action Plan implementation strategy.
3. Establishes the “Safer from Wildfires” Framework. (Section 2644.9 of Title 10 of the California Code of Regulations)

FISCAL EFFECT: Unknown

COMMENTS:

1. Purpose: According to the author: “The devastating impacts of increasingly frequent and severe wildfires have accelerated insurance rate increases, non-renewals, and market instability, causing an insurance crisis in California. In an effort to save lives, protect property, and address the insurance crisis, California has prioritized efforts to prevent wildfires and reduce their severity. The state, local governments, and individual property owners have spent billions of dollars on hazardous fuel reduction, home hardening, and creating defensible space – all recognized approaches for reducing the severity of wildfires. However, the underwriting models used by insurers to decide whether to renew policies or offer new policies usually do not account for the risk reduction benefits of these activities. That means that communities are not seeing the benefits of these risk mitigation efforts reflected in the cost and availability of insurance coverage. SB 1060 encourages property insurers to incorporate wildfire risk reduction associated with hazardous fuel reduction, home hardening, and defensible space in the models they use for underwriting, to decide whether to renew a policy or offer coverage to a new customer. Accounting for those wildfire risk mitigation actions in underwriting models will ensure that insurers give credit for the billions of dollars that California has invested in wildfire resilience, forest health, and community protection and will result in more available insurance coverage for Californians.”
2. CDI Safer from Wildfires Framework: In 2022, CDI announced the “Safer from Wildfires” framework, which directs insurers to provide discounts to consumers and businesses if they take specified mitigation measures. In crafting this regulation, CDI worked with emergency preparedness agencies in the Governor’s Administration, including CAL FIRE, Cal OES, the Governor’s Office of Planning and Research, and the California Public Utilities Commission.

The framework provides a list of home and community wildfire mitigation measures that consumers and business can take to provide protection for the structure, the immediate surroundings, and the community. Under the regulation, the more “Safer from Wildfires” steps a consumer takes the more they may be able to save on their insurance.

The regulation required insurance companies to submit new rate filings incorporating the wildfire safety standards created by CDI and also requires insurance companies to provide consumers with their property’s “wildfire risk score” and a right to appeal that score. Once the regulation is fully implemented it should help protect consumers. Steps a consumer can take to help mitigate their property under this framework include:

• Class-A fire rated roof: Most roofs qualify including asphalt shingles, concrete, brick, or masonry tiles, and metal shingles or sheets.
• 5-foot ember resistant zone, including fencing: Removing greenery and replacing wood chips with stone or decomposed granite 5 feet around your home prevents fire from getting a foot in the door.
• Ember- and fire-resistant vents: Installing 1/16 to 1/8 inch noncombustible, corrosion-resistant metal mesh screens over exterior vents can keep wind-blown embers out of your house.
• Non-combustible 6 inches at the bottom of exterior walls: Having a minimum of 6 vertical inches measured from the ground up and from any attached horizontal surface like a deck can stop embers from accumulating and igniting your walls. Noncombustible materials include brick, stone, fiber-cement siding or concrete.
• Enclosed eaves: Installing soffits under your eaves can prevent heat and embers from getting trapped and igniting. When enclosing eaves, non-combustible or ignition resistant materials are recommended.
• Upgraded windows: Multi-paned windows are more resistant to breaking during a wildfire, which helps keep flames from entering. Multi-paned glass or added shutters all qualify.
• Cleared vegetation, weeds and debris from under decks: Noncombustible materials like concrete, gravel, or bare soil are permitted.
• Removal of combustible sheds and other outbuildings to at least a distance of 30 feet: These include sheds, gazebos, accessory dwelling units (ADUs), open covered structures with a solid roof, doghouses and playhouses.
• Defensible space compliance: Following state and local laws requiring defensible space including trimming trees and removal of brush and debris from yard.

1. California’s Risk Modeling and Advisory Workgroup: The Risk Modeling Advisory Workgroup (Workgroup) provides a means to understand and model wildfire risk for a community and specified parcels through the input of mitigating factors. The Workgroup provides a forum for subject matter experts in wildfire related fields to address wildfire risk modeling issues of statewide concern. CAL FIRE is tasked with posting the recommendations on how to understand and model risk for a community and specific parcel on the internet website. The Workgroup reports to the Wildfire Mitigation Advisory Committee and acts in an advisory capacity to the California Department of Forestry and Fire Protection in consultation with the State Fire Marshal and the California Insurance Commissioner on wildfire risk modeling.

The Workgroup released a report on September 9, 2023 outlining many obstacles but also providing recommendations. One recommendation included the need for data collection. As stated in the report, “To accurately gauge the most current state of wildfire risk is WUI communities, there needs to be a common data set upon which consumers of data can rely. The Workgroup recommends the establishment of a “Wildfire Open Data Commons” to overcome many of the challenges associated with the availability of and access to wildfire risk data. The Workgroup believes that there is a widespread agreement among users of wildfire risk data, including catastrophic modelers, fire managers, the insurance industry, and public and private wildfire research organizations on the value of this type of shared data.”

This measure doesn’t take approaches/recommendations outlined in this report.

1. The Sustainable Insurance Strategy (SIS): Following the Governor’s Executive Order in September 2023, the Insurance Commissioner announced historic insurance reforms. These reforms should be complete by December 2024. The Insurance Commissioner has already released a number of proposed regulations that will address the rate filing process, catastrophe modeling, and distressed areas. The distressed area reform is the most recent announcement and an important piece to highlight. This specific piece of the SIS is intended to incentivize insurers to write policies in identified high “risk’ areas. The Insurance Commissioner is in the thick of things as far as attempting to stabilize the insurance market. A number of informational hearings have taken place monitoring the progress of these reforms to ensure balance is found between stabilizing the market and maintaining consumer protections.
2. Concerns with this bill:  This measure has manifested throughout the legislative process since being introduced in February.  More questions remain as to the purpose and intent.  In print now, the measure states, if an insurer uses risk models for underwriting purposes, the insurer can account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space and fire prevention activities.  The next provision mandates insurers that use risk models for underwriting to report to CDI on an annual basis for 10 years on the risk mitigation categories described above. The bill is inconsistent with one provision permissive and the other required- hence confusing.  Additionally, while this may not seem damaging as a whole, the topic of insurer’s underwriting is not a subject matter previously legislated (although litigated) and much thought and time must be provided considering the current insurance crisis this state is in. (This measure does not help stabilize the insurance market.) It is unclear if the insurers have the ability to provide the information requested in the measure and more importantly, whether the models have the ability to provide what is asked in this measure. It’s also unclear, if CDI even knows which insurers use which risk models for what purposes. While the author of this measure would like to focus on insurers underwriting, this may actually further exasperate the insurance availability crisis.   The author may wish to propose an informational hearing on the topic of underwriting and discuss what appropriate and useful data to CDI should be collected prior to moving any legislation forward that could further impact insurance availability. 

Furthermore and rightfully so, a lot of time, energy, and state/federal funding has been spent on risk mitigation and home hardening to prevent and prepare for the next wildfire. Unfortunately, homeowners are still struggling to obtain and maintain insurance. It’s unclear still, if the Safer from Wildfires Framework is working as intended so perhaps the focus should be on ensuring policyholders receive a discount before we move onto pointing to underwriting as a hindrance.  SB 1060 could have an adverse effect and send the wrong signal and it is not worth calling anyone’s bluff to find out.  Putting forth what could be perceived as additional barriers for homeowners to get insurance is not an option. As reported in a number of recent articles including CalMatters (California home insurance: Regulators require more policy-writing- CalMatters) “California can’t legally require insurers to write either residential or commercial property policies.” 

Solutions and focus should be on making California insurable, not uninsurable.

1. Related legislation: AB 1933 (Calderon) Requires CDI to report to the Assembly Committee on Insurance and the Senate Committee on Insurance regarding wildfire risk models, on or before, January 1, 2026, and annually thereafter. Pending before the Senate Insurance Committee.

AB 2416 (Connolly) Requires by December 31, 2027, and every three years thereafter, CDI to evaluate whether to update the Safer from Wildfires regulations to include certain building hardening measures. Pending before the Senate Insurance Committee.

1. Previous legislation: AB 642 (Friedman) (Chaptered by Secretary of State, Chapter 375, Statutes of 2021) This measure required the Workgroup (discussed above) to act in an advisory capacity to CAL FIRE, in consultation with the State Fire Marshal and the Insurance Commissioner on wildfire risk modeling.
2. Arguments in support: According to Consumer Watchdog, “SB 1060 would have required that underwriting models used by insurance companies take into account the wildfire risk reductions resulting from hazardous fuel reduction, home hardening, defensible space, and fire prevention activities for properties, communities and landscapes. While that mandate has been removed, we support the bill to continue that critical conversation.”
   
3. Arguments in opposition: According to the “Trades” (the Personal Insurance Federation of California, the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, and the Pacific Association of Domestic Insurers): “…this bill is premature and impossible to implement given the real-world data constraints, and it is inconsistent with the critical efforts led by the Governor and Insurance Commissioner to restore a healthy and competitive insurance market that increases insurance availability and reliability for Californians…”
   
4. Recommended committee amendments: The following amendments change the focus of the bill to the Safer from Wildfires Framework (discounts for mitigation) established and enforced by CDI.

• Add the following language to Insurance Code 12964.5 or other section within that article.

3000.

 As used in this article:

(a) “Defensible space” has the same meaning as defined in Section 51177 of the Government Code.

(b) “Fire prevention activities” has the same meaning as defined in Section 4124 of the Public Resources Code.

(c) “Hazardous fuel reduction” has the same meaning as defined in Section 4464 of the Public Resources Code.

(d) “Home hardening” has the same meaning as defined in Section 4291.5 of the Public Resources Code.

3001.

If an admitted  property insurer uses risk models pursuant to Section 2644.9 of Title 10 of the California Code of Regulations for underwriting purposes, those risk models may account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities for properties, communities, and landscapes.

3002.

(a) If an admitted insurer usesing risk models pursuant to Section 2644.9 of Title 10 of the California Code of Regulationsfor underwriting purposes, as described in Section 3001, shall, beginning January 15, 2026, and on or before each January 15 thereafter, may report to the department the extent to which risk models used for underwriting purposes account for the categories of risk mitigation identified in Section 3001, including the types and numbers of policy applications and renewals, by ZIP Code. that are evaluated by underwriting models that account for the categories of risk mitigation identified in Section 3001.  and any other information the department deems necessary. The department shall post the information contained in the report, excluding any confidential or proprietary information, on the department’s internet website.

REGISTERED SUPPORT / OPPOSITION:

Support

City of Laguna Niguel

City of Oakland Mayor Sheng Thao

City of Yorba Linda

Consumer Watchdog

County of Monterey

United Policyholders (Support if Amended)

Opposition

American Property Casualty Insurance Association

National Association of Mutual Insurance Companies

Pacific Association of Domestic Insurance Companies

Personal Insurance Federation of California

Analysis Prepared by: Kathleen O'Malley / INS. / (916) 319-2086

 THIRD READING  

Bill No: SB 1060

Author: Becker (D), et al.

Amended: 5/16/24

Vote: 21

SENATE INSURANCE COMMITTEE: 4-2, 4/24/24

AYES: Rubio, Alvarado-Gil, Cortese, Dodd

NOES: Niello, Caballero

NO VOTE RECORDED: Ochoa Bogh

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/16/24

AYES: Caballero, Ashby, Becker, Bradford, Wahab

NOES: Jones, Seyarto

SUBJECT: Property insurance underwriting: risk models

SOURCE: Author

DIGEST:

This bill requires a property insurer that employs risk models for underwriting purposes that account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities for properties, communities, and landscapes, to provide to the Department of Insurance information that demonstrates compliance with these provisions. Repeals this section on January 1, 2036.

ANALYSIS:

Existing law:

1. Establishes the Wildfire and Forest Resilience Action Plan and the Wildfire and Forest Resilience Action Plan implementation strategy.
2. Requires insurance companies to provide discounts to customers who implement wildfire safety measures, including home hardening and defensible space.

This bill:

1. Sets forth legislative findings and declarations.
2. Defines the following terms: “Defensible space”, “Fire prevention activities”, “Hazardous fuel reduction”, and “Home hardening”.
3. Specifies that if a property insurer uses risk models for underwriting purposes those models may account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities for properties, communities, and landscapes.
4. Requires an insurer using the risk models as described, to provide to the department information necessary, as determined by the department, including the types and numbers of policy applications and renewals, by ZIP Code, that are evaluated by underwriting models that account for the categories of risk mitigation.

Comments

This bill takes a multi-faceted approach to wildfire mitigation efforts. The bill looks at both large-scale community fire prevention and individual home hardening to combat the dangers of wildfires. While home hardening one home at a time isn’t going to prevent the next catastrophic wildfire, it may save one home at a time. Individual homeowners are pouring millions of dollars into hardening their homes. Similarly, according to the author, we have spent $3.7 billion since 2017 on large-scale mitigation efforts such as hazardous fuel management and prescribed burns. Landscape-scale forest management as a strategy for large-scale fire reduction has gained attention and support among experts, policymakers, and communities. This approach involves managing forests and landscapes on a broader scale to reduce fire risks and enhance forest resilience. Landscape-scale forest management allows for proactive management of forests and landscapes to reduce fuel loads, such as dead wood, underbrush, and overgrown vegetation, which can act as fuel for wildfires. By creating strategic fuel breaks, clearing fire-prone vegetation, and implementing controlled burns, landscape-scale forest management can help reduce the spread and intensity of wildfires. Managing forests and landscapes on a larger scale can protect entire communities by reducing the risk of wildfires reaching residential areas and infrastructure. So the question is, are we spending our resources wisely? This bill attempts to capture whether these investments are paying off by collecting data from insurance companies that includes the types and numbers of policy applications and renewals by ZIP Code.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

Unknown, potentially absorbable workload to the California Department of Insurance (CDI) to review insurers’ underwriting models as part of the department’s current rate filing process (Insurance Fund).

SUPPORT: (Verified 5/17/24)

California State Association of Counties

OPPOSITION: (Verified 5/17/24)

None received

ARGUMENTS IN SUPPORT: The California State Association of Counties contends that it is “critically important that property owners across the state are not penalized for taking steps, recommended by the state, to protect their communities. SB 1060 moves the needle in the right direction toward this goal. Counties have made significant investments in community-wide approaches to increase compliance with recommended home hardening and defensible space upgrades as well as major vegetation management and fuel reductions work. All of this has helped communities become tangibly more resilient to wildfire, and inherently reduces risk to the insurers. There is no one solution that is going to solve this crisis, however, we feel that SB 1060 begins to address an important facet of the issue by accounting for the benefits of risk reduction measures.”

Prepared by: Jill Rice / INS. / (916) 651-4110

5/20/24 18:52:35

**** END ****

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 1060 (Becker) - Property insurance underwriting: risk models

Bill Summary:

SB 1060 requires a property insurer using risk models for underwriting purposes to account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities for properties, communities, and landscapes. SB 1060, beginning January 15, 2026 and before each January 15^th thereafter, also requires the California Department of Insurance (CDI) to ensure property insurers’ underwriting models comply with the specified wildfire risk mitigation evaluation criteria.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 16, 2024

Fiscal Impact:

Unknown, potentially absorbable workload to the California Department of Insurance (CDI) to review insurers’ underwriting models as part of the department’s current rate filing process (Insurance Fund).

Committee Amendments:

Make permissive the requirement for property insurers to account for specified wildfire risk reduction activities as part of their underwriting models.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 1060 (Becker) - Property insurance underwriting: risk models

Bill Summary:

SB 1060 requires a property insurer using risk models for underwriting purposes to account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities for properties, communities, and landscapes. SB 1060, beginning January 15, 2026 and before each January 15^th thereafter, also requires the California Department of Insurance (CDI) to ensure property insurers’ underwriting models comply with the specified wildfire risk mitigation evaluation criteria.

Fiscal Impact:

Unknown, likely significant ongoing fiscal impact to the California Department of Insurance (CDI) for increased administrative and enforcement workload to ensure insurer compliance with the mandates of this bill (Insurance Fund).

Unknown potentially significant impact on administrative rate proceedings, to the extent that CDI’s expanded responsibilities in reviewing underwriting model compliance impact the department’s review of rate filings.

CDI’s activities are funded by regulatory and license fees and generally, the department does not receive support from the General Fund. To the extent that this bill creates additional workload pressures that impact the department’s operating costs, then there may be a future need to increase regulatory fees.

Background:

Generally, insurance underwriting is the process of evaluating a risk to determine if an insurer will insure it, and if so, at what rate. Pursuant to Proposition 103, insurers are required to file proposed rates with CDI before implementing property and casualty insurance rates. The department’s Rate Regulation Division reviews all filings within certain timeframes and either approves the filing or issues a notice of hearing on that filing, which invites public participation in the administrative process for rate setting.

Mitigation in Rating Plans and Wildfire Risk Models. Insurance Commissioner Ricardo Lara released insurance pricing and transparency regulations (10 California Code of Regulations (CCR) § 2644.9) in October 2022, which aim to reduce insurance costs for policyholders who take measures to mitigate their wildfire risk. These regulations, among other things, required certain insurance companies to submit new rate filings incorporating wildfire safety standards to the department by April 12, 2023 and established a process for releasing wildfire risk determinations to residents and businesses. Insurers are also required to provide to CDI any wildfire risk model used, in whole or in part, in a rating plan as part of the insurer’s complete rate application. While CDI may use an insurer’s underwriting model in its review of a rate filing, the department does not weigh in or otherwise comment on these models.

Proposed Law:

• Requires a property insurer using risk models for underwriting purposes to account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities for properties, communities, and landscapes.
  • Beginning January 15, 2026 and before each January 15 thereafter, requires insurers to provide CDI information necessary to ensure compliance, including the types and numbers of policy applications and renewals that are evaluated by underwriting models that account for the categories of risk mitigation identified.
• Sunsets the above provisions on January 1, 2036.
• Establishes definitions.
• States legislative findings and declarations.

-- END --

SENATE COMMITTEE ON INSURANCE

Senator Susan Rubio, Chair

2023 - 2024 Regular

Bill No: SB 1060 Hearing Date: April 24, 2024

SUBJECT: Property insurance underwriting: risk models

DIGEST:

This bill will require a property insurer that employs risk models for underwriting purposes to account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, and defensible space. The bill will also authorize the department to examine underwriting models to ensure compliance with that risk model requirement and to issue orders that are necessary to ensure compliance.

ANALYSIS:

Existing law:

1. Establishes the Wildfire and Forest Resilience Action Plan and the Wildfire and Forest Resilience Action Plan implementation strategy.
2. Requires insurance companies to provide discounts to customers who implement wildfire safety measures, including home hardening and defensible space.

This bill:

1. Sets forth legislative findings and declarations.
2. Defines the following terms: “Defensible space”, “Fire prevention activities”, “Hazardous fuel reduction”, and “Home hardening”.
3. Requires a property insurer that uses to risk models for underwriting purposes to ensure that those models account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities for properties, communities, and landscapes.
4. Authorizes the Department of Insurance to examine underwriting models to ensure compliance with that risk model requirement and to issue orders that are necessary to ensure compliance.

Background (Author’s Statement)

The devastating impacts of increasingly frequent and severe wildfires have accelerated insurance rate increases, non-renewals, and market instability, causing an insurance crisis in California. In an effort to save lives, protect property, and address the insurance crisis, California has prioritized efforts to prevent wildfires and reduce their severity. The state, local governments, and individual property owners have spent billions of dollars on hazardous fuel reduction, home hardening, and creating defensible space – all recognized approaches for reducing the severity of wildfires. However, the underwriting models used by insurers to decide whether to renew policies or offer new policies do not account for the risk reduction benefits of these activities. That means that communities are not seeing the benefits of these risk mitigation efforts reflected in the cost and availability of insurance coverage. SB 1060 will fix this problem by directing property insurers to incorporate wildfire risk reduction associated with hazardous fuel reduction, home hardening, and defensible space in their underwriting risk models, which will ensure that they fairly give credit for the billions of dollars that California has invested in wildfire resilience, forest health, and community protection and will result in more available insurance coverage for Californians.

Comments

This bill is focused on local and state-wide wildfire mitigation efforts. The idea of focusing on large-scale community fire prevention rather than individual home hardening to combat the dangers of wildfires is an interesting perspective. We know that the key to combatting wildfires is large-scale solutions. Hardening one home at a time isn’t going to prevent the next catastrophic wildfire, so the question is, are we spending our resources wisely? According to the author, we have spent $3.7 billion since 2017 on hazardous fuel management and prescribed burns. Landscape-scale forest management as a strategy for large-scale fire reduction has gained attention and support among experts, policymakers, and communities. This approach involves managing forests and landscapes on a broader scale to reduce fire risks and enhance forest resilience. Landscape-scale forest management allows for proactive management of forests and landscapes to reduce fuel loads, such as dead wood, underbrush, and overgrown vegetation, which can act as fuel for wildfires. By creating strategic fuel breaks, clearing fire-prone vegetation, and implementing controlled burns, landscape-scale forest management can help reduce the spread and intensity of wildfires. Managing forests and landscapes on a larger scale can protect entire communities by reducing the risk of wildfires reaching residential areas and infrastructure. This bill attempts to capture whether these investments are paying off.

This bill also requires underwriting models to account for individual mitigation efforts like home hardening. The Committee may wish to consider that while this is a common goal shared by many in the Legislature, is one that is already underway in many facets of public policy. Specifically, the Insurance Commissioner’s Sustainable Insurance Strategy is already being implemented and has specific language relating to home hardening benefits and rate relief in the new Mitigation in Rating Plans and Wildfire Risk Models regulations. Additionally, the Legislature and the Insurance Commissioner have been moving in tandem towards a policy of getting insurers to reenter and stay in the marketplace. Toward this end, the Sustainable Insurance Strategy includes an agreement for insurance companies to commit to writing at least 85 percent of their statewide market share in wildfire-distressed underserved areas. This bill leaves open the possibility that the 85 percent will now exclude those unable to harden or mitigate their homes.

Suggested Amendments

Amendment 1

On page 4, lines 1 – 5 Strike out Section 1(b)(3)

(3)Provide the Department of Insurance with the authority to confirm that the identified categories of risk mitigation are accounted for in the models used by property insurers for underwriting without granting the department any additional authority over underwriting decisions or criteria.

Amendment 2

On page 4, after Section 3002

Strike Lines 27 – 30 and insert

3002. The department may examine models used by property insurers for underwriting purposes to ensure compliance with Section 3001 and may issue orders that are necessary to ensure compliance.

• • • • 1. An insurer shall, beginning January 15, 2026 and annual thereafter, provide to the Department of Insurance information necessary, as determined by the department, to ensure compliance with section 3001, including the types and numbers of policy applications and renewals, by ZIP Code, that are evaluated by underwriting models that account for the categories of risk mitigation identified in Section 3001.
        2. This Section shall be repealed on December 31, 2035.

This amendment will remove the expanded authority granted to the CDI under this bill while preserving the policy objective which is to ensure that the insurers are using the categories of risk mitigation in the models they employ. Additionally, this amendment will provide additional data to the CDI that will further address the concerns of the author about whether these investments in state-wide wildfire mitigation efforts are paying off.

ARGUMENTS IN SUPPORT:

Rural County Representatives of California supports transparency and increased oversight of the modeling practices used by insurers to issue and rate policies for homeowners across California. SB 1060 would aid residents looking to keep or obtain insurance policies in high wildfire risk areas by requiring insurers to employ risk models for underwriting purposes that account for wildfire risk reduction associated with hazardous fuel reduction, home hardening, defensible space, and fire prevention activities at both the parcel level as well as community-wide. By utilizing models that more correctly account for community- and parcel-level mitigation efforts, insurers will have a more complete picture of the actual wildfire risk of each property owner, which will enable them to make more informed decision about renewals, rate-setting and market saturation.

The County of Marin writes that widespread hazardous fuel reduction and structure hardening can substantially reduce an insurers’ average annual losses. Importantly, the risk models that insurers use should take into account the benefits of hazardous fuel reduction, home hardening, and defensible space for homes, businesses, and communities – and accurately reduce the reduced risk of wildfire to those properties. As a result, we agree with the principals of SB 1060 that meaningful investments in mitigations, like what we have committed to in Marin, should reduce the cost of insurance and/or increase availability to those properties and regions.

ARGUMENTS IN OPPOSITION:

According to a joint letter submitted by the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, the Pacific Association of Domestic Insurance Companies, and the Personal Insurance Federation of California, (the trades) SB 1060 undermines the Governor and Commissioner as it circumvents their comprehensive Sustainable Insurance Strategy (SIS) with a shortsighted and problematic proposal that attempts to assert new powers over insurer underwriting and further destabilizes California’s fragile insurance market. They also contend that SB 1060 does nothing to address climate change, inflationary pressures, or the underlying rate and regulatory issues that must be fixed to stabilize the homeowner’s’ insurance market, protect insurer financial solvency, and restore insurance availability and reliability to Californians.

Specifically, the trades look to section 3001 and the word “account” as they characterize this as a transparent attempt to dodge explicitly imposing a harmful underwriting mandate, yet it is clear the goal of this bill is to force insurers to take on risks that are not supported by adequate rate levels and jeopardize their financial solvency. The statutory requirement to “account” for certain mitigation actions in underwriting is unclear and imprecise in meaning but will certainly create new expectations that result in conflict between insurers and their customers – likely leading to litigation. Thus, SB 1060 immediately increases uncertainty and instability in the market.

The trades also contend that this measure is premature since CDI is currently working on modernizing the state’s regulatory system to allow insurers to use catastrophe models that incorporate wildfire mitigation measures into rating plans. However, that system does not yet exist.

Lastly, the trades note that while wildfire mitigation is important for protecting lives and property, it is not a singular determinant for insurance coverage or price. Insurers must base their decisions, including for risk selection, according to individual business needs which are informed by numerous other factors, such as available capital, cost of reinsurance, and concentration risk. Thus, by providing CDI greatly expanded authority to issue orders necessary to ensure underwriting compliance, SB 1060 undermines the ability of carriers to manage their risk exposure and overall business needs.

SUPPORT:

OPPOSITION:

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