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California homeowners and renters should brace for rising insurance premiums as the state takes a major step toward reshaping its insurance market. On Thursday, the California Department of Insurance approved the first catastrophe model that insurers can now use to help determine property insurance rates.

The move is part of Insurance Commissioner Ricardo Lara’s broader plan to address the state’s shrinking insurance market, which has seen major carriers reduce or withdraw coverage due to escalating wildfire risks and increasing costs. The approved catastrophe model uses historical data and predictive analytics to assess future risk and potential losses – an approach long used in other states but previously barred in California.

In exchange for permission to use catastrophe modeling, insurers will be required to expand coverage offerings in high-risk areas, a key provision aimed at improving access to homeowners and fire insurance in underserved communities.

The Department of Insurance began reviewing catastrophe models in February and continues to evaluate two additional proposals. The agency says the models are expected to reduce year-to-year premium volatility following major disasters and will incorporate wildfire mitigation efforts at all levels – from individual property owners to federal initiatives.

Insurers are currently reviewing the approved model and may begin incorporating it into future rate filings with the Department. In addition to catastrophe modeling, Lara’s reform plan also allows insurers to factor in their reinsurance costs when setting rates – another significant shift expected to increase premiums in the short term but help stabilize the market over time.

However, the plan has faced criticism from consumer advocates who argue that states already allowing these practices have still seen rising costs and limited availability. Despite concerns, the reforms mark a pivotal moment in California’s evolving approach to climate risk and insurance regulation.