Best's Review


Risk Adviser
On Watch

Insurers must monitor climate change legislation that threatens the industry.
  • Stephen Moriyama
  • September 2020
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California's extreme weather continues to yield devastating wildfires and natural disasters, making climate change a formidable threat. With environmental dangers like increased forest fires and rising water levels evident, lawmakers are establishing task forces and new insurance protocols.

California's representatives are swiftly proposing legislation that affects insurers and their ability to offer essential services. With new policies come major shifts in insurance offerings for individuals and organizations.

Limited Coverage vs. Increased Threats

Due to the uptick in wildfires, California residents are now living in areas previously undeclared as fire zones. In addition to seeking fire policies, homeowners and living facilities in these areas are facing brush exposure which includes mudslide, flood and water damage.

Cost-prohibitive insurance factors are displacing both current homeowners and prospective buyers, creating limited access to markets as a result of fire-damaging climate change. Unseen ripple effects due to lack of insurability—from reduced emergency service offerings to decreases in tax revenues that fund community schools and programs—make the impact worse.

Offerings From the CA Fair Plan

In the fall of 2019, California's Insurance Commissioner Ricardo Lara attempted an order to force the CA Fair Plan (insurer of last resort) to add comprehensive policies to fire plans. These included policies for water damage, personal liability and theft. This order was proposed to mitigate consumer risk of being underinsured due to unanticipated, new exposures, such as flood and water damage. In February, the California Supreme Court ruled the CA Fair Plan updates unconstitutional, as they would eliminate the need for private insurance carriers. However; although the updates did not pass, the motion's submission proved that the California government is prepared to step in and provide stop-gaps to insure consumers at all costs—even those detrimental to the future of the insurance industry.

California's dynamic, fluid situation promises to keep us on our toes. The Renew California bill proposed in February would require insurers to write or renew policies for existing homes that meet new standards for fire hardening. If this bill passes, California's insurance commissioner would have the authority to require insurers to offer financial incentives for making homes more fire-safe.

COVID-19's (Lack of) Environmental Impact

Although California's COVID-19 stay-at-home orders have improved air quality, scientists are not anticipating long-term environmental improvements that solve the problem of increased climate change threats. “I don't think we can say that there is any long-term significance in this decrease [of air pollution],” Vincent-Henri Peuch, director of the Copernicus Atmosphere Monitoring Service told Euronews.

Recent findings show that as soon as the public resumes activities, flying, driving and other pollution contributors will increase and reverse environmental improvements. Although beneficial now, our temporary halt of destructive behaviors will not be reversing potential threats of increased natural disasters, wildfires and/or water damage events.

As we navigate unanticipated challenges of climate change, it is critical to monitor our markets and keep in constant contact with our insurers. Whether or not your business resides in California, be sure to watch for new bills and proposals endorsed by the state's insurance commissioner and governor. Their actions and the task force they implement may soon appear on your state ballots, affecting coverage requirements you provide.

Best’s Review contributor Stephen Moriyama is a vice president at broker NFP. He can be reached at

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