On Thursday, September 28, the California Department of Insurance (CDI) held a second workshop on the topic of catastrophe modeling. CDI started off with a brief presentation regarding the path that led to this second workshop. They highlighted a few observations on public input from the first workshop that focused on (1) appropriate degree of review and testing, (2) sensitive information and public transparency, (3) need for proper expertise, and (4) public model option.
CDI noted that the focus of the second workshop was to (1) investigate how models impact availability, affordability, and rate stability, (2) identify appropriate model review measures, and (3) examining and resolving the complexities of model implementation.
Several folks from the modeling community testified and collectively focused on the benefits of forward-looking models. Benefits include a rigorous, science-based, and data-driven approach to understanding wildfire risk. They agreed that stakeholders should understand how a particular view of risk has been derived but cautioned that modelers would need to protect their Intellectual Property Products (IPP).
The workshop was also attended by consumer groups who focused on a need for transparency and advocated for a public model to be used by all, instead of private models that wish to protect their IPP.
PIFC Vice President, Seren Taylor, provided the insurer perspective. He noted the California homeowners’ insurance market has fallen into a capacity crisis due to a restricted ability to price wildfire-risk and that the use of models would allow the rate to reflect the expected future cost of catastrophes. It would also result in increased insurance availability when insurers have adequate rates. Another benefit of catastrophe models is the rate stability over time, so consumers can be aware of insurance prices before purchasing property in high-risk areas. The current, backwards looking approach can result in rates changing dramatically following a high-wildfire year and cause “sticker shock” for consumers.
No additional workshops have been announced and we anticipate a formal draft regulation in the near future.
