A report released last week by a group formed by California Insurance Commissioner Ricard Lara calls for the creation of a public / private “extreme heat” risk pool backed by private reinsurance capital.
Independently of this, the report also calls for catastrophe models to become the basis for calculating forest fires instead of historical losses.
“In short, California has a growing protection gap – the gap in coverage between insured and uninsured damage,” the report said. “A widening gap leaves communities more exposed to the financial cost and less able to recover. “
According to the report by the Climate Insurance Working Group, California should establish an extreme heat risk pool that aggregates forest fire risks from cities and counties to the state, which in turn pushes the risks onto the private insurance and reinsurance markets.
The working group was established in 2018 to make recommendations on how to reduce the threat of forest fires, floods, mudslides, high urban heat and sea level rise.
“This type of solution costs money that would come from the taxpayer,” the report said. “The public sector would have to pay more upfront but gain the ability to better respond to future heat waves, potentially protecting health and saving money in the long run. “
The report recommended a “parametric insurance model” to expedite claims payouts based on the California Urban Heat Island Index developed by the California Environmental Protection Agency’s Office of Environmental Health Hazard Assessment.
“Based on this tool, a trigger would be set if the payment from the parametric guideline of the risk pool was made to the local government a few days before, during, or immediately after the heatwave,” the report said. “The local jurisdiction would determine how the funds would be used.”
In addition to the forest fire reinsurance pool, the report calls on the insurance commissioner to allow the use of disaster models to price forest fire insurance policies. Currently, insurers only need to use historical claims analysis to estimate future insurance claims.
“The Commissioner should convene one or more public meetings or discussions to examine existing departmental approaches and compare those based on past damage experiences with the possible use of disaster models to enable the Commissioner and the public to express this political To discuss and evaluate the instrument, ”says the report. “In doing so, the insurance commissioner should assess how measures to contain forest fires, including mandatory burning and forest management, community buffers and house hardening, are integrated into disaster models.”
The report, and the use of civil protection products in particular, has already been rejected by consumer groups who fear that their use will increase forest fire insurance rates based on private market models.
“Keeping such private models secret would prevent the insurance commissioner or the public from reviewing the assumptions made in determining the fair tariff,” said Consumer Watchdog, a California-based nonprofit organization.
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