Verisk Wildfire Model is the First Catastrophe Model Under Review for Insurance Ratemaking in the State of California

Rhea-AI Summary

Verisk's Wildfire Model has become the first catastrophe model to be reviewed for insurance ratemaking in California, as per the newly-announced regulation from the California Department of Insurance. This regulation aims to tackle property insurance availability issues by including catastrophe models in ratemaking processes. Verisk’s model, which assesses wildfire risks, is intended to help insurers better evaluate and price wildfire coverage, potentially leading to more accurate rates and improved availability of insurance in wildfire-prone areas. This move could significantly impact the insurance market in California, aiding both insurers and policyholders in managing wildfire risks more effectively.

Positive

• Verisk Wildfire Model is the first to be reviewed for insurance ratemaking in California.
• New regulation aims to improve property insurance availability by incorporating catastrophe models in ratemaking.
• Potential for more accurate insurance rates and better management of wildfire risks.

Negative

• Potential challenges in the adoption and implementation of the new regulation.

Insights

Catastrophe Risk Analyst

This marks a groundbreaking regulatory shift in California's insurance landscape. The inclusion of Verisk's wildfire model in insurance ratemaking represents the first time catastrophe models will be considered for determining property insurance rates in California - a state that has historically relied on historical loss data. This development could fundamentally transform how insurance companies price wildfire risk in one of the largest insurance markets in the United States.

The timing is important as California faces an insurance availability crisis, with major insurers like State Farm and Allstate restricting new business in the state due to wildfire risks. Verisk's model could help insurers more accurately price risks, potentially leading to market stabilization and increased insurance availability. For property owners, this could mean more options for coverage, though possibly at higher rates in high-risk areas.

From a market perspective, this regulatory approval process positions Verisk as a pioneer in California's catastrophe modeling space. If approved, it could create a significant competitive advantage and new revenue streams as other insurers adopt the model to comply with new regulations. The California market alone represents approximately $100 billion in property insurance premiums, making this a substantial opportunity for Verisk's risk assessment business.

Insurance Industry Analyst

The California Department of Insurance's decision to consider catastrophe models for ratemaking is a pivotal shift that could resolve the state's property insurance crisis. Verisk's first-mover advantage in this regulatory review process positions them to capture significant market share in California's insurance analytics space. Insurance carriers have been desperately seeking more sophisticated tools to price wildfire risk and Verisk's model could become the industry standard.

This development could lead to increased adoption of Verisk's solutions across other states facing similar climate-related insurance challenges. The company's data analytics and risk assessment services could see enhanced demand as insurers seek to better understand and price climate risks. Being the first model under review also gives Verisk valuable insights into regulatory requirements, potentially accelerating future model approvals in other jurisdictions.

Newly-Announced Regulation from the California Department of Insurance Will Address Property Insurance Availability by Allowing Forward-Looking Catastrophe Models

Jersey City, Jan. 02, 2025 (GLOBE NEWSWIRE) -- In a groundbreaking step toward a more resilient and sustainable property insurance market in California, Verisk (Nasdaq: VRSK), a leading global data analytics and technology provider, announced today that it is the first modeler to request a review of its wildfire catastrophe model by the California Department of Insurance (CDI). 

This development is made possible as one part of California Insurance Commissioner Ricardo Lara’s Sustainable Insurance Strategy, which includes the decision to allow catastrophe models to be used by insurance carriers as a critical tool for assessing catastrophic risk. Verisk is the first to submit a model after the regulation went into effect on January 2, 2025.

Verisk’s Extreme Event Solutions pioneered the catastrophe modeling business in 1987 to support the insurance industry’s ability to provide resilience to communities and businesses. With its longstanding tradition of best-in-class modeling, Verisk brings decades of experience and technical expertise to help insurance companies understand and manage the complex landscape of natural disaster risks. The Verisk Wildfire Model for the United States incorporates leading knowledge of the wildfire hazard and vulnerability as well as recent trends in variables that impact the extent of wildfire risk in the Western United States, including in California, which saw more than 391,000 acres burned in wildfires in 2023 alone.  

California’s property insurance market has faced unprecedented challenges as wildfire risks and claims costs continue to rise. The use of catastrophe models in California is expected to provide consumers, insurers, and regulators with enhanced insights into natural disaster risks and increased insurance availability across the state. The initiative balances transparency and innovation, helping secure California’s property insurance market for the future. 

Today’s pioneering submission demonstrates Verisk’s commitment to supporting Californians and the CDI’s efforts in ensuring that California’s insurance industry is adaptable and responsive to emerging challenges by enabling: 

• Strengthening of California’s Insurance Market: This process showcases how insurers, modeling firms, and the CDI can work together to create a more stable, competitive, and resilient property insurance market. Verisk’s submission sets the stage for insurers to utilize catastrophe models in California. 

• Use of Catastrophe Models in Rate Filing: As the first catastrophe modeling company to be reviewed in California, Verisk is taking a proactive step in advancing fair and accurate risk assessment. This enables insurers to accurately reflect and consider the wildfire risks encountered by California homeowners and businesses. 

• Further Validation of Model Integrity: The newly established pre-application required information determination (PRID) process allows the CDI to examine model integrity and ensure public review and compliance with Proposition 103. Verisk’s best-in-class modeling has a long tradition of regulatory acceptance throughout the United States.  

“We’re proud to be the first catastrophe modeler to work with the California Department of Insurance to offer a modeled assessment of wildfire risk and to help bring stability to the insurance market,” said Rob Newbold, president of Extreme Event Solutions at Verisk. “This is a pivotal moment for California’s insurance market, one that promises improved resilience and stability for providers and potential insureds.” 

Learn more about the Verisk Wildfire Model for the U.S. 

### 

About Verisk  
Verisk (Nasdaq: VRSK) is a leading strategic data analytics and technology partner to the global insurance industry. It empowers clients to strengthen operating efficiency, improve underwriting and claims outcomes, combat fraud and make informed decisions about global risks, including climate change, extreme events, sustainability and political issues. Through advanced data analytics, software, scientific research and deep industry knowledge, Verisk helps build global resilience for individuals, communities and businesses. With teams across more than 20 countries, Verisk consistently earns certification by Great Place to Work and fosters an inclusive culture where all team members feel they belong. For more, visit Verisk.com and the Verisk Newsroom.  

FAQ

What is the significance of Verisk's Wildfire Model being reviewed for ratemaking in California?

It is the first catastrophe model to be reviewed under new regulations, aiming to improve property insurance availability by incorporating catastrophe models in ratemaking.

How will the new regulation affect property insurance in California?

The regulation aims to improve insurance availability and pricing accuracy by allowing the use of catastrophe models like Verisk's Wildfire Model in ratemaking.

What impact could Verisk's Wildfire Model have on wildfire insurance rates?

The model could lead to more accurate pricing of wildfire insurance, potentially improving the availability and affordability of coverage in wildfire-prone areas.

Why is the review of Verisk's Wildfire Model important for insurers?

It helps insurers better evaluate and price wildfire risks, leading to potentially more accurate and sustainable insurance rates.

What are the potential challenges of the new regulation for Verisk (VRSK)?

There may be challenges in the adoption and implementation of the new regulation, affecting how quickly and effectively it can be integrated into the market.