California-domiciled insurance companies, under a new regulation, must prepare for climate risks, artificial intelligence, cyber threats, and other challenges that could affect their financial strength and ability to pay claims over the coming decades.
The California Department of Insurance said in a news release that the "first-in-the-nation" initiative, introduced in June by Commissioner Ricardo Lara, requires insurers to provide "forward-looking information" on the ways they are analyzing and preparing for these risks.
The regulation also requires insurers that write more than $50 million in direct annual premiums nationwide to maintain and keep current an assessment of emerging risks and opportunities that are material to their business.
Lara said the threats covered under the regulation "are already reshaping the future of insurance," and not acting before those concerns evolve into crises "is not a strategy."
"We are acting now to ensure insurers are preparing for what lies ahead so they can continue keeping their promises to consumers," Lara said. "Every consumer who pays an insurance premium deserves confidence that their insurance company will be there when they need it most, not only today, but years from now."
The regulation strengthens the ability of regulators to monitor developing risks before they threaten that promise and requires covered insurance companies to prepare for challenges before they become financial vulnerabilities.
"This regulation reflects a simple belief: protecting consumers means preparing for the future, not reacting to it," said Commissioner Lara. "The questions confronting California are increasingly the same questions confronting insurance regulators around the world. This framework ensures that we are not simply responding to those conversations but helping shape them."
With his second and final term ending in December, the new regulation, a culmination of the Sustainable Insurance Strategy (SIS) that Lara introduced in September 2003, will likely be one of his final actions as commissioner. The focus of the SIS was the introduction of catastrophe models that take into account mitigation and hardening requirements to price rates and discount benefits, and address insurance availability in at-risk areas of the Golden State.
