This is an update to California Dreamin’ CAT Models Into Reality published in Sept/Oct 2024.
Almost immediately after California’s new regulation Section 2644.4.5 Use of Catastrophe Models went into effect on January 2, 2025, Verisk became the first to submit its wildfire model to the California Department of Insurance (CDI). Soon after, CoreLogic, AIR and Risk Management Solutions (RMS) filed their models for approval as well.
The new regulation expands the use of catastrophe models in California to cover more perils, most notably wildfire. Previously, the department only allowed the use of catastrophe models for earthquake and fire following earthquake.
This has been a long time coming, given that many states have been using catastrophe models covering a broad range of perils for decades. In a recent interview with NBC, the CDI indicated that it expects to conclude its review of catastrophe models pertaining to wildfire risk this year. Considering the “dozens of pages of criteria to be met,” the newness of the regulation, and California’s notoriety in lengthy review times, however, approval may take longer.
What this means for actuaries:
For insurance companies that write in California, internal teams and management should discuss how to respond to the new regulation — whether that is adopting a third-party vendor model, adapting an existing wildfire model for California’s new regulations, or developing a new model just for California. The CDI has published a Wildfire Catastrophe Model Checklist that details the specific requirements for companies’ wildfire model filings. This checklist will enable insurance companies to meet the requirements of the regulation regardless of the route taken to adopt a model in California.
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