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11 March 2025News

California introducing 'overdue reforms': California Commissioner Lara

California is implementing "long overdue" insurance reforms in the wake of the Los Angeles wildfires, California Insurance Commissioner Ricardo Lara (pictured) told attendees at the Bermuda Risk Summit, which is taking place in Bermuda this week.

In an impromptu speech at the end of a panel discussion featuring four of Bermuda’s leading re/insurance executives, Lara also agreed the backstop FAIR plan was not sustainable.

He said Californians now understood that they should be paying insurance to cover the risk to the place they love, he said.

This will be a reality going forward, he added.

He said the California Insurance Department had already authorised the use of catastrophe modelling for the first time and would also allow a pass through for reinsurance costs to customers in order to increase the availability of insurance.

While this could lead to higher costs for policyholders, Lara said: “We have to get to availability to get to affordability.”

Lara said  the insurance market was acting as it should – paying claims and helping its customers. It would then move on to lessons learned.

He said the reforms already enacted had gone from “zero regulations to fully implemented in one year”.

Lara asked the CEOs present on the panel for feedback on how to improve California’s insurance market.

Hiscox Re & ILS chief executive officer Kathleen Reardon said the insurance industry wanted to embrace risk and not to run from it. She said the FAIR Plan – the state-operated insurance backstop which has been forced to carry out a $1 billion assessment on insurers to remain solvent – was “ultimately not a sustainable solution”.

Lara agreed that part of future reforms would involve the FAIR plan which needed to be “depopulated” as soon as possible.

“It cannot grow, and it is not sustainable,” he said.

Christian Dunleavy, president of Aspen Insurance, said homes needed to be made more resilient when they were rebuilt and that that resilience should reflected in terms of risk adjusted insurance coverage.

But he said his biggest concern was the lack of take-up for earthquake in California.

“As an industry, we would like to work with you on that,” he said.

Earlier, the CEOs reflected on the California wildfires, with Convex founder and executive chairman Stephen Catlin saying: “I don’t understand the term secondary loss. A catastrophe is a catastrophe, full stop.

“It is clear that climate change is having an effect globally on fire and flood. We need to be aware these will recur again and again and again.”

He added that one factor that had not been widely discussed was the loss of fine art in the fires. He said it was not uncommon in Los Angeles for a house and property to be worth 10% of the home’s contents.

He said it was not clear where the art was insured  as it was often too valuable to be covered in the property segment.

Arch Capital chief executive officer Nicolas Papadopoulo said the insured cost of the catastrophe at an estimated $40 billion was the equivalent of a Category 2 hurricane.

But he noted it was a record for a wildfire and its scale was unforeseen. He said the industry had done its part in paying claims quickly to people in need.

He said the industry was not concerned about volatility provided it would be paid for it.

“If we are able to price the volatility, the market is willing to deploy more capital,” he said.

Reardon noted the human impact of the fires, and added that they reminded people of the value proposition of reinsurance.

She said Hiscox had embraced the new Verisk catastrophe model which included urban conflagration and factored in the effect of climate change.

She said California was unique as a market because of its regulation and other requirements which meant it was vital to understand the region and the market’s complexities. But she said Hiscox was not running away from the risk.

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