Reinsurance helps insurers respond financially to large catastrophes like a wildfire or earthquake. Insurers share a portion of the premium with reinsurers to rent capital and reduce the burden of a major event involving multiple policyholders.
In California, regulations allow reinsurance costs for earthquakes to be included in insurance rates but not for wildfires or other catastrophes. This penalizes insurance companies that spread the risk of major wildfires, and results in bottom-line loss and expense outstripping premium over the long term. This, and other issues, are making it more complicated for homeowners in the state to find insurance with wildfire protection in the voluntary market.
How can insurance be restructured to solve the wildfire insurance availability issue in California? Milliman consultant Sheri Scott discusses some options in her article “Reshaping insurance to solve California’s wildfire insurance availability issue.”