In this report, Milliman was asked to study how enabling California insurers to use wildfire catastrophe models for ratemaking might affect homeowners premiums and market conditions. Our report includes seven key findings. We note how the experience method currently required under the rate template that the California Department of Insurance (CDI) uses exposes both insurers and consumers to rate shock. While the historical method relies solely on an insurer’s past experience, catastrophe models can recognize changes in exposure, the environment and mitigation.

This report was commissioned by Personal Insurance Federation of California and American Property Casualty Insurance Association.