California law requires insurers to obtain regulatory approval before implementing rate changes for most property and casualty insurance policies, including homeowners coverage.
The requirement stems from Proposition 103, a voter-approved measure enacted in 1988 that established a prior-approval system for insurance rates. Under the law, insurers must submit rate applications to the California Department of Insurance and receive approval before changes can take effect.
The California Department of Insurance says its rate filing review process requires insurers to provide supporting data to justify proposed rate changes. The department’s Rate Regulation Division reviews filings and may approve them or issue a notice of hearing following a public comment period.
In 2024, regulators said insurers may use forward-looking catastrophe models and include certain reinsurance costs when setting rates, subject to state guidelines, according to a California Department of Insurance press release.
The same regulatory updates include requirements tied to coverage availability. Insurers using catastrophe models must write policies in wildfire-prone areas consistent with their statewide market share, according to a department alert.
A Southern California property cited in a recent Wall Street Journal article on insurance costs reflects the type of risk evaluated in rate filings. A Sacramento Business Daily report found the Agoura Hills home is located in a Very High Fire Hazard Severity Zone and within the burn perimeter of the 2018 Woolsey Fire. The report estimated the home’s rebuild cost at approximately $3.2 million, with annual premiums reported at about $44,000.
Wildfire risk classifications are used by state agencies to identify areas of elevated fire exposure based on factors including vegetation, terrain, and weather patterns, according to state fire hazard maps.
The California Department of Insurance said the regulatory framework governs how insurers submit and justify rate changes while maintaining oversight of pricing and coverage requirements.
