California moves to build public wildfire catastrophe model

Takeaways:

• Public wildfire cat model would check insurers' and even regulators' risk assessments
• Building the model depends on work by the state's university system
• Effort to mandate risk mitigation credit for homeowners fell short

Legislation passed by California's legislature and sent to the governor September 17 will allow the state to build its own public wildfire catastrophe model.

The bill's passage does not guarantee that the model will get built, or, if it does, that it would produce findings different from the wildfire risk models used by insurers. 

SB 429, the California Wildfire Public Catastrophe Model Act, creates the Wildfire Safety and Risk Mitigation Program. The bill, based in part on recommendations from a strategy group at Cal Poly Humboldt University formed by state insurance commissioner Ricardo Lara, could bring more transparency to wildfire catastrophe models.

The California Department of Insurance (CDI) currently uses a probabilistic model review process known as Pre-Application Required Information Determination (PRID) to evaluate insurers' wildfire catastrophe models. PRID is part of Lara's Sustainable Insurance Strategy issued in August 2024 and put into effect at the end of 2024.

"Consumer groups have criticized the Sustainable Insurance Strategy for lack of transparency," said Dave Jones, director of the climate risk center at UC Berkeley, and the state's previous insurance commissioner from 2011 to 2019. "In particular, they have argued that the probabilistic model review process associated with use of those models for the catastrophe load of rates is insufficiently transparent and not consistent with Proposition 103, the voter enacted rate regulation law that requires transparency in rates and rate review. Having a public model, the benefit of that is that it will be transparent at least. I think that's the intention – that the code, the data, the outputs – all of that will be publicly accessible."

Just as Cal Poly Humboldt played a part in recommending a public wildfire catastrophe model, the implementation of such a model would depend on California's universities, said Christopher Butler, an attorney at Pillsbury Winthrop Shaw Pittman and a professor at USC's law school. 

"We have an incredible public university system in California," he said. "But certainly, it's disfavored by the current federal government, which is going after it for a lot of funding. So is there going to be the funding there to pull this off, given all the attacks on research? It's state funded, so probably yes."

Having a public wildfire catastrophe model in place could serve as a check on insurers' wildfire risk models as well as the results of CDI reviews of models, Butler added.

In a related issue, California should revisit efforts to require credits to home insurance policyholders who mitigate fire risk on their property, according to Jones. He pointed to Colorado's passage of HB 1182 in May, which requires insurers that use catastrophe models to account for mitigation efforts. In California's 2024 legislative session, SB 1060, a similar insurance risk mitigation credit measure, never made it beyond Assembly and Senate committees.

"It's embarrassing for California that Colorado enacted it, and California hasn't," Jones said. "Hopefully it will be reintroduced. We're going to see other states in the West that are investing a lot of money in adaptation resilience, and their residents are investing a lot of money in adaptation resilience, and they're seeing nothing in terms of that getting accounted for in insurance models. We're going to see other states enact it as well. Colorado is showing the way."