California has rolled out a new law to expand access to homeowners insurance, but a watchdog group fears the legislation will only lead to a greater burden for residents.
What's happening?
As detailed by Edhat Santa Barbara, state insurance commissioner Ricardo Lara introduced "catastrophe modeling" as part of his plan to increase coverage in wildfire-prone areas. The regulation allows private insurers to use computer modeling to assess risk when setting premiums instead of relying on past losses.
"Giving people more choices to protect themselves is how we will solve California's insurance crisis. For the first time in history, we are requiring insurance companies to expand where people need help the most. With our changing climate, we can no longer look to the past. We are being innovative and forward-looking to protect Californians' access to insurance," Lara said.
However, even though the regulation received glowing praise from a diverse coalition of policymakers, environmental groups, and other advocacy organizations, Consumer Watchdog — a nonprofit consumer protection organization — criticized the move.
"Full transparency is what keeps insurance rates honest but Commissioner Lara's rule does away with that protection. The rule will let insurance companies raise rates based on secret algorithms but not expand coverage as promised," Consumer Watchdog executive director Carmen Balber said, per Edhat Santa Barbara.
Why is this important?
Warming global temperatures cause an uptick of more intense extreme weather, and areas previously believed to be climate havens haven't been spared.
More and more states are grappling with sky-high insurance rates. The National Bureau of Economic Research estimates that "growing disaster risk will lead climate-exposed households to face $700 higher annual premiums by 2053."
Some argue that AI-driven computer modeling is the key to reducing costs — or insuring the otherwise uninsurable — with the analysis giving insurance companies detailed data about climate-related risks and ways homeowners can limit their impact.
However, the downside is that AI systems need massive amounts of water and energy, with many data centers still relying on dirty fuels — the primary reason that Earth's climate is becoming unnaturally warm. This raises the question of whether AI-driven modeling will create a bigger problem, though several major companies are transitioning to clean or low-carbon energy sources to clean up AI operations.
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Definitely 🙁 What's being done to protect California homeowners?
According to a media release from the California Department of Insurance, more than 1,000 parties helped inform the new insurance regulation. To ensure "model integrity" and transparency, Commissioner Lara has hired model adviser Kara Voss, an expert in catastrophe modeling for wildfire and flooding events when part of the Climate and Sustainability Branch.
After a proposed model passes a "pre-application required information determination," or PRID, insurers can begin using that model to write policies. The department planned to begin accepting PRID applications on Jan. 2 and intends to complete its review in months.
Consumer protection organizations like Consumer Watchdog will surely keep monitoring the situation and help sound the alarm if anything seems amiss.
Ultimately, though, computer modeling is only a short-term solution to the growing insurance crisis in the U.S. In the long term, reducing pollution from dirty fuels is the best way to bring an angry planet back into balance.
Upgrading to more energy-efficient technologies is a simple way to help — and help offset rising insurance costs. For example, LED light bulbs create five times less pollution than traditional bulbs, and because they use less energy, they can save households hundreds of dollars every year.
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