In response to California Governor Gavin Newsom’s executive order and the California Department of Insurance Commissioner Ricardo Lara’s proposal to address the state’s insurance market challenges, Guidewire CEO Mike Rosenbaum issued a public statement expressing support and optimism for the measures.
“California’s insurance crisis calls for collaboration between government regulators and insurers to create a sustainable insurance market – one that provides consumers protection and choice,” stated Rosenbaum.
“This is particularly critical in a market grappling with the impacts of climate change and severe wildfire risk. We applaud the actions of California Governor Gavin Newsom and Insurance Commissioner Ricardo Lara in their efforts to adapt regulations to support a more viable insurance market.”
Guidewire HazardHub data revealed that over 90% of property damage in California is concentrated in just 10% of the state with an F rating for wildfire risk, where homes are 50 times more likely to suffer wildfire damage.
With the right regulatory framework and advanced data and risk analytics, insurers can better assess, price, and manage risk both at the individual property and portfolio levels.
California stands as the U.S. state most susceptible to wildfire risk, with an average of 8,273 wildfires annually and approximately 933,000 acres burned each year over the past decade.
California’s property and casualty (P&C) market is the nation’s largest, with over $11 billion in homeowners and fire insurance premiums written. Nevertheless, the market has witnessed the departure or restriction of policies by seven of the twelve insurers that collectively provide 85% of the insurance coverage in the state.
In a pivotal move to address the crisis, the California Department of Insurance plans to allow insurers to factor reinsurance costs into their rate calculations, mitigating a significant risk and cost barrier that had led insurers to exit the market.
Additionally, insurers will now be permitted to assess catastrophe risk using forward-looking projections from risk models, recognising the inadequacy of relying solely on historical data in the face of climate change and urban expansion into high wildfire risk areas.
Roger Arnemann, General Manager & SVP at Guidewire Analytics, commented, “These proposals to permit insurers to price catastrophe risk with forward-looking projections will be a game changer in improving market conditions. The current requirements that rely solely on historical data are outdated in a time when weather and natural catastrophe events are changing rapidly.”
Traditional insurance risk assessment tools have struggled to accurately identify and differentiate risk in wildfire-prone areas, often relying on limited data elements that treat large geographical areas as having uniform risk.
However, Arnemann highlighted that comprehensive data and advanced technology can enable insurers to assess and underwrite property risk profitably by examining over thirty data elements correlated with higher wildfire risk at the exact property address level.
