Insurers doing business in California will be allowed to use forward-looking catastrophe models for underwriting purposes only if they increase the amount of business they write in high wildfire-risk areas of the state, according to a proposal from the state's insurance regulator.

The proposal, part of Insurance Commissioner Ricardo Lara's effort to overhaul the state's insurance market, was the topic of discussion at a June 13 workshop. Another workshop to finalize the proposal is scheduled for June 26.

"Insurance companies are writing more and more in areas of the state deemed less risky, especially with the continued threat of climate change," Lara said in a news release. "We are enacting a major reform that will result in insurance companies writing more policies, so if you are stuck on the FAIR Plan because of your unique wildfire risk, there will be help for you."

The office of Gov. Gavin Newsom said the proposed regulation would require larger carriers "to insure properties in distressed areas at a rate equal to 85% of the insurer's statewide market share."

The so-called distressed areas where the California FAIR Plan, the state's insurer of last resort, has become the only option for insurance. Small or regional insurance carriers in those areas can qualify to use catastrophe models if they report a 5% increase in policies.

The regulator also published a map showing the locations of those distressed areas.

The allowance of cat models amounts to a break from the standards established in the Insurance Rate Reduction and Reform Act of 1988, also known as Proposition 103 (Prop 103), which requires insurers to take the average of actual losses for the previous 20 years when setting rates.

"The only way to increase availability and consumer access to coverage is to restore the health of the market and remove the obstacles that led to this crisis in the first place," Mark Sektnan, vice president for state government relations for American Property Casualty Insurance Association's western region, said in an emailed response.

"We remain committed to working with the department to address these concerns and implement the other desperately needed reforms to fix the insurance crisis," Sektnan said.

The cat model caveat is part of the regulator's Sustainable Insurance Strategy published in September 2023. Among the goals of the strategy are the allowance for cat models, the overhaul of the rate-approval process and the possible inclusion of "California-only" reinsurance expenses in new rate filings.

The modeling rules in Prop 103 were among the reasons for The Allstate Corp., The Progressive Corp. and State Farm Mutual Automobile Insurance Co. either leaving or declining to write new business in the Golden State.

Allstate has since returned to the market and started writing new business after the regulator approved a 30% increase in private personal auto rates.