California Property Insurance

California’s largest insurance reform in over 30 years is being implemented through regulations passed by the Department of Insurance’s Sustainable Insurance Strategy (“SIS”). These changes address insurance availability and affordability due to growing climate risks in the state.[i] Currently, California is one of the few states which does not allow insurance companies to recover the costs of purchasing reinsurance in ratemaking. Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit their own total loss in case of disaster. This practice is described as “insurance of insurance companies” by the Reinsurance Association of America, with the underlying rationale being to ensure that no insurance company has too much exposure to a particularly large event or disaster.[ii]

Under the new SIS regulations, insurance companies can now consider the cost of reinsurance in ratemaking to encourage carriers to re-enter and expand their business in the California property market because the rates will more accurately reflect the cost of doing business in California.[iii] In addition to providing necessary insurance coverage, these SIS regulations aim to increase insurer solvency and market stability.[iv] These new regulations are likely to increase home insurance rates in California.

A goal of the changes is to move homeowners out of the California Fair Access to Insurance Requirements (“FAIR”) plan, which is considered safety net insurance. When California property owners are unable to obtain insurance, they are forced to turn to California’s insurer of last resort, the FAIR Plan.[v] Under the FAIR plan, insurance companies cooperate and share the risk associated with covering high-risk properties.[vi] Even though the FAIR plan is not a government-sponsored program, the plan is regulated by the Department of Insurance.

In response to the recent devastating wildfires across Southern California, on January 9, 2025, the legislature introduced a new bill, the FAIR Plan Stabilization Act, to assist in issuing catastrophe bonds and help finance the costs of insurance claims. The proposed bill authorizes the California Infrastructure and Economic Development Bank to issue bonds and provide the FAIR plan with access to a line of credit if liquidity issues arise, which will increase the capacity to pay claims under the FAIR plan.[vii] The proposed bill is scheduled to be heard February 9, 2025. The timeline for Assembly Bill 226 will be important in determining how quickly relief can be provided to California’s strained insurance market.

Other changes to stabilize California’s insurance market include propositions for catastrophe modeling to expand wildfire protection in high-risk areas.[viii] Under these regulations, insurance companies that utilize reinsurance must commit to increasing coverage in wildfire-distressed areas defined by the Department of Insurance.[ix] These concessions mean insurers will raise premiums for the state’s property owners but in exchange must maintain a certain number of policies in high-risk areas. Recommendations on how to create a public catastrophe model must be submitted to the Department of Insurance by April 2025. 

New Civil Liabilities and Prohibitions

California also passed over 1,000 new laws effective 2025. These new laws include a new cause of action for when a person is doxxed by another person.[x] Doxxing is the act of publishing information about someone on the internet, typically with malicious intent, a form of electronic cyber harassment.[xi] It is already a misdemeanor in California to dox another person, but this new law now imposes a civil cause of action for doxxing.[xii]

Another new law effective in 2025 creates civil liability for both private and public higher education institutions if a person is harmed by a hazing incident that occurred on or after January 1, 2026.[xiii] The new anti-hazing law creates a rebuttable presumption that the institution took reasonable steps to stop the hazing if the institution took specified actions intended to prevent hazing.[xiv]

Many new laws affect landlords. Landlords of residential property are now required by statute to take photographs of tenant units at the inception of the tenancies that begin on or after July 1, 2025.[xv] Beginning April 1, 2025, landlords are also required to take photographs of a tenant’s unit within a reasonable time after possession is returned to the landlord, but prior to any repairs or cleaning.[xvi] Civil Code Section 1950.5 was amended to limit claims against a tenant for contractor work or professional cleaning services.[xvii] Landlords are also now prohibited from charging an application screening fee for a residential property unless the landlord offers a process that considers the applications in the order they are received and provides an applicant with a refund if the applicant was not selected.[xviii] Finally, a new law expands the time that a tenant of residential property must file an answer or demurrer to an unlawful detainer action from 5 to 10 days.[xix]

2025 Changes in Auto Insurance

Under the Protect the California Drivers Act, minimum limits on automobile insurance increased in 2025, and all insurance policies will be required to have at least $30,000 for bodily injury or death per person, $60,000 for bodily injury or death per accident, and $15,000 for property damage per accident.[xx] Similarly, if drivers carry optional uninsured/underinsured motorist bodily injury coverage—that coverage must have a limit of at least $30,000 per person and $60,000 per accident.[xxi] These updates replace the outdated 15/30/5 standard and aim to provide better financial coverage for accident victims.

Changes were also made to the 10-day notice period specified under Insurance Code Section 662; the period now commences from nonpayment of the premium due by the specified due date and makes a cancellation for nonpayment effective if the insured has not cured the nonpayment of premium due identified in the notice by the end of the 10-day period.[xxii]

Takeaway

The California Department of Insurance continues to amend outdated regulations to improve California’s property insurance market under the Sustainable Insurance Strategy program and the FAIR plan, which was first established by Insurance Code Section 10090 et seq. in 1968. These changes are likely to increase homeowner insurance premiums in California, and automobile insurance is also likely to increase under new 2025 laws. Landlords especially should be aware of new statutory changes by the Legislature that affect tenancy issues and make necessary changes to how they do business in the future.

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Sources

[i] Statement Of Reasons. Net Cost of Reinsurance and Ratemaking. State Of California. Department Of Insurance. 300 Capitol Mall, 17^th Floor, Sacramento, CA 95814. REG 2024-00016. Date: December 27, 2024

[ii] Fundamentals Of Property Casualty Reinsurance With A Glossary Of Reinsurance Terms, Reinsurance Association of America (2003), https://www.sfu.ca/~rjones/econ410/readings/Reinsurance%20fundamentals%20RAA.pdf.

[iii] Id.

[iv] Id.

[v] Id.

[vi]See California Department of Insurance (CDI) fact sheet on Summary on Residential Insurance Policies and the FAIR plan published January 13, 2025.

[vii]California Assembly Bill 226, California FAIR Plan Association, introduced January 9, 2025.

[viii] Final Statement of Reasons. Catastrophe Modeling and Ratemaking. State Of California. Department Of Insurance. 300 Capitol Mall, 17^th Floor, Sacramento, CA 95814. REG 2023-00010. Date: November 13, 2024, which amends Ca. Code Regs. tit. 10, §§ 2644.4, 2644.5, 2644.4.8 and 2644.27, and adopts §§ 2644.4.5, 2644.4.8 and 2648.

[ix] Id.

[x] California Assembly Bill 1979, CH. 557 effective January 1, 2025, Doxing Victims Recourse Act

[xi] California Civil Code Section 1708.89.

[xii] California Penal Code Section 653.2 prohibits doxing, a form of electronic cyber harassment.

[xiii] Id.

[xiv]California Assembly Bill 2801, CH. 280 effective January 1, 2025, Tenancy: Security Deposits

[xv] Id.

[xvi] Id.

[xvii] Id.

[xviii] Assembly Bill 2493, CH. 966 effective January 1, 2025, Tenancy: Application Screening Fee (amends Civil Code Section 1950.6)

[xix] Assembly Bill 2347, CH. 512 effective January 1, 2025, Summary Proceedings for Obtaining Possession of Real Property: Procedural Requirements

[xx] Senate Bill 1107, CH. 717 effective January 1, 2025, Vehicles: Insurance, an act to add Section 12960 to the Insurance Code, and to amend, repeal, and add Sections 16056, 16430, 16435, 16451, and 16500 of, the Vehicle Code, relating to vehicles.

[xxi] Id.

[xxii] Senate Bill 1295, CH. 793 effective January 1, 2025, Automobile Insurance: Notice of Cancellation (Amends Insurance Code Section 662)