Opinion: Californians deserve clarity on what’s driving skyrocketing insurance costs

Climate change has thrown insurance markets into dysfunction, and the situation is about to get more dire. As the epicenter of a global insurance crisis, it is critical that California formulates a strong response.

Creating and funding public catastrophe models, like the one called for in California’s Senate Bill 429, is a good start. It seeks a model that would help regulators, insurers and others assess wildfire risk and future losses.

Under the Trump administration, the federal government is abandoning its responsibility to support communities facing climate catastrophe. It’s shifting costs onto state governments by gutting FEMA and slashing funding for crucial weather data and climate adaptation. Many businesses, including insurance companies, rely heavily on this data. These harmful federal cuts are leaving the public vulnerable.

Public catastrophe models like the one proposed in SB 429 can serve as a check on the proprietary “black box” risk prediction models insurers use to justify rate increases and to conceal information from customers about how to reduce risk.

California has smartly invested billions of dollars in wildfire mitigation over the past decade. Insurers should be required to factor that into their underwriting.

Unfortunately a bill requiring them to do so stalled in the California Senate last session, exacerbating concerns over whether Californians will be able to access the insurance market after January’s devastating wildfires.

Public catastrophe models can help solve these problems. By providing greater transparency around modeling, they can blunt the negative fallout of our insurance crisis for consumers. By collecting sophisticated, granular information about climate risk, these public models can help inform and drive greater public investment in climate resilience.

This data can be used to inform government investments in risk reduction, such as ecological forest management and floodplain management, which will likely make insurance markets much healthier over time.

Without a public alternative, the proprietary models used by insurance companies are what we are left with.

There is little information about the inputs used in these private models, and they have been shown to have big flaws. Analyses of some of the most commonly used proprietary risk modelers from insurance companies have revealed glaring inconsistencies that could increase costs for Californians and elevate the risks for homeowners.

In a March report outlining a road to recovery from the Los Angeles wildfires, researchers at UCLA and the University of Southern California called for more reliable data and stronger coordination between government agencies, the insurance sector and individual households. They argued for substantial investments in climate resilience and urged that those investments be incorporated into insurance models.

A public catastrophe model would be useful in supporting all of that work. It would also help guarantee that Californians see the benefits of the mitigation investments they are making through more widely available and affordable insurance policies.

During the Biden administration, the Federal Insurance Office recommended that state insurance offices build a platform to collaborate on catastrophe model data and methodology. Biden’s White House even floated the concept of a national catastrophe model to host that effort.

Trump is now dismantling all of the federal agencies that might have housed such a platform, while also failing to act on Gov. Gavin Newsom’s request for federal aid for the L.A. wildfires.

With the federal government no longer a reliable partner, it is more important than ever that states like California take the lead in protecting consumers.

Jordan Haedtler is a climate financial policy strategist with Climate Cabinet and a former legislative staffer in the state Assembly. He wrote this commentary for CalMatters.