The commissioner within the California Department of Insurance was speaking in reply to a delegate's question on the impact of Allstate's decision to pause writing new homeowners’, condo and commercial cover in California late last year, and if this should trigger a rethink on the impact of climate change on insurance pricing.
State Farm also recently announced that it was pulling back from writing homeowners’ insurance in the state due to rising inflation, catastrophe exposure and reinsurance costs. Concerns have grown in recent months about insurers' depleting appetite to provide cover in California, with sources telling this publication that most new business in wildfire-prone areas will have to flow to the non-admitted market or the state’s market of last resort, the Fair Plan.
At the Bermuda event, Lara emphasised that Allstate's decision reflected "a pause" and that the carrier had not "pulled out of California altogether", adding that insurers in other states have made similar moves.
He added: "We need to have an open and transparent dialogue with insurers about the amount of rate that is needed, and how this information has been communicated to consumers."
Without this dialogue, Lara explained that a protection gap in the state "will just keep growing".
The commissioner also said "now is the time" to inform consumers about what the industry is seeing on the impact of climate risks on insurance.
As for consumers, he explained that if they have decided to live in areas more prone to the impact of volatile weather and climate change, "they need to understand that there is greater risk in certain areas where they choose to live", and that "they may have to pay for that amount of risk".
Lara said there are also responsibilities for house builders, adding that companies are "continuing to build in areas they shouldn't be building".
On the general subject of how climate-related risks are posing a significant threat, including recent wildfires, Lara pointed to the damage left by floods across California. He said that every county in the state has had a “governor-defined” flood event, yet the extent of flood coverage remains incredibly low in California.
On the topic of innovation, Lara said California is looking at pilots for five different parametric projects, covering different risks such as coastal flooding, inland flooding, wildfires and extreme heat.
As co-chair of the National Association of Insurance Commissioners' climate and resiliency executive task force, Lara talked about the progress of its workstreams.
This included securing an increase in states agreeing to implement a climate disclosure framework for their respective insurance markets. These agreements have ensured that 85% of the entire US insurance market has now agreed to the guidelines under the Task Force for Climate Related Financial Disclosures, set up by the Financial Stability Board.