Verisk to Get First Cat Model Under Review for Insurance Ratemaking in California

Verisk said on Thursday it will be the first modeler to request a review of its wildfire catastrophe model under a reform pushed by California Insurance Commissioner Ricardo Lara.

The reform allows catastrophe models to be used by insurance carriers in ratemaking. It’s part of a series of reforms, which also include allowing reinsurance as a ratemaking factor and requires insurers to increase coverage in high-risk areas.

The latest step, which the California Department of Insurance said will create more insurance coverage options for Californians while limiting the costs passed on to consumers, is designed to work with other reforms underway.

The new regulations come as the state has seen broad insurance carrier pullback from the wildfire prone state. They also began requesting steep rate increases. State Farm applied for large rate increases in California, a year after the carrier got rate approvals of 7% and 20%. The insurer, the largest in California, insures nearly one-in-five homes in the state. It recently requested a 30% rate increase for its homeowners line, a 52% rate increase for renters and 36% rate increase for condo coverage.

Allstate, which stopped issuing new California homeowners insurance policies in 2022, is seeking an increase in its California homeowners insurance premiums by an average of 34%. It would be the largest rate increase this year and would impact more than 350,000 policyholders.

Verisk said it is the first to submit a model after the regulation went into effect on Jan. 2.

The newly established pre-application required information determination (PRID) process allows the CDI to examine model integrity and ensure public review and compliance with Proposition 103.

“We’re proud to be the first catastrophe modeler to work with the California Department of Insurance to offer a modeled assessment of wildfire risk and to help bring stability to the insurance market,” stated Rob Newbold, president of Extreme Event Solutions at Verisk. “This is a pivotal moment for California’s insurance market, one that promises improved resilience and stability for providers and potential insureds.”