After a summer that saw many of California's top home insurers pull back from the state market, Insurance Commissioner Ricardo Lara announced Thursday that he struck a deal with the insurance industry to encourage new coverage in the state.

Insurers, Lara said, agreed to return to the high-risk fire zones in the hills and canyons of California in exchange for a number of concessions that will make it easier, in theory, for them to get higher rate increases through the state regulator more quickly. The announcement comes the week after negotiations in Sacramento over a legislative response to the home insurance market fell apart.

Gov. Gavin Newsom also issued an executive order on Thursday afternoon commanding the insurance commissioner to "take prompt regulatory action to strengthen and stabilize California's marketplace" and consider whether emergency action could be necessary.

The changes are slated to go into effect by the end of 2024, but the hope is that insurers will return to writing new homeowners policies in California sooner. Leading insurers such as State Farm, USAA and Allstate all have requests for rate increases pending with the state insurance department, and are requesting hikes of 28.1%, 30.6%, and 39.6%, respectively.

If approved, each company would be allowed to raise its total premiums in the state by that amount, but the rate increase can be distributed differently among homeowners: a cabin in the woods might see a 200% jump while a home in San Francisco could see little to no change.

Since the massive fire years of 2017 and 2018, home insurers have been gradually withdrawing from the most fire-prone parts of the state. As a last resort, homeowners and businesses in those areas have turned to California's FAIR plan, a backstop insurance provider funded by the companies that do business in the state, which charges much higher rates to provide less coverage in high-risk areas. The result of this pullback can be seen in the numbers: the number of FAIR plan customers more than doubled since 2018, up to 3% of the total state market.

Under this new deal, insurers have agreed to return to those fire risk zones up to a certain threshold equivalent to 85% of their statewide market share. That means State Farm's California home insurance branch, which covers over 21% of the state market, would be required to cover 18% of the houses in fire zones. The net effect will be that major insurers will combine to cover 85% of customers in those areas, with the FAIR plan and other higher-cost insurers picking up the remaining 15%.

In exchange, Lara has offered to loosen certain elements of insurance regulation in California. The Personal Insurance Federation of California, an insurance trade association, gave the deal its blessing in a statement following Lara's announcement.

"It is painfully clear the current system is not working properly," wrote Rex Frazier, president of the PIFC. "Today's actions are an important first step in stabilizing California's insurance market."

Under the existing system, insurers need to apply to the Department of Insurance to raise their average rates across the state, and provide reams of supporting documents to justify the price hike. The process also allows for consumer advocates to intervene along the way to serve as watchdogs in the process.

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