California Needs to Make Changes to Address Its Climate Risk Crisis

California’s insurance challenges have roots going back decades. Yet they’ve come to the fore in the past five years, during which the five largest wildfires in the state’s history have occurred, according to Cal Fire.

In 1988, state voters passed Proposition 103, requiring insurance companies to obtain approval from the state Department of Insurance before they could charge different rates. But the terms of that proposition have not been updated to address climate risk.

For example, insurers are not allowed to price catastrophe risk prospectively. This means that, in an evolving climate risk environment, insurers writing coverage in the state cannot use the most current data and most advanced modeling technologies to inform their pricing.