Section 2644.4.5 - Use of Catastrophe Models(a) Permitted uses.(1) For the earthquake and flood lines, projected annual aggregate losses may be based on catastrophe models.(2) The catastrophe adjustment for the fire following earthquake exposure, and for terrorism exposure, in lines other than earthquake and flood may be based on projected annual aggregate losses derived from catastrophe models.(b) Wildfire exposure. The catastrophe adjustment for wildfire exposure for commercial property insurance may be based on catastrophe models, provided that the insurer complies with the provisions of Section 2644.4.8 that are applicable to commercial property insurance. The catastrophe adjustment for wildfire exposure for "qualifying residential property insurance," as that term is defined in Section 2644.4.8, may be based on catastrophe models, provided that the insurer complies with the provisions of Section 2644.4.8 that are applicable to such qualifying residential property insurance. For an insurer that thus complies with Section 2644.4.8 with respect to such qualifying residential property insurance, the catastrophe adjustment for wildfire exposure covered under a renter's insurance policy, an HO-6 policy, or the equivalent of an HO-6 policy, may also be based on catastrophe models.
(c) Additional lines or exposures. (1) In addition to the permissible uses of catastrophe models specified in subdivisions (a) and (b) of this Section 2644.4.5, at the Commissioner's discretion, models may be used in cases where limited historic insurance data is available: (A) To project annual aggregate losses in lines of insurance other than those specified in subdivision (a)(1) of this section, or(B) To determine the catastrophe adjustment for exposures to perils other than those specified in subdivision (a)(2) or (b) of this section.(2) The Commissioner may allow modeling for such additional lines or exposures only if, taking into account the circumstances under which, and the conditions pursuant to which, modeling for the additional line or coverage in question is to be permitted, it is in the Commissioner's judgment reasonably foreseeable that permitting modeling would serve two or more of the following purposes of Proposition 103: (A) Protecting consumers from arbitrary insurance rates and practices.(B) Encouraging a competitive insurance marketplace.(C) Ensuring that insurance is fair, available and affordable to all Californians.(3) In the event the requirement of subdivision (c)(2) of this section is satisfied, the Commissioner's decision as to whether to allow modeling for additional lines or exposures shall be based upon the following factors:(A) The degree to which the peril is an emerging or a newly recognized peril for ratemaking purposes.(B) The degree to which a model is likely to be reliable for ratemaking purposes.(C) The extent to which any historical insurance data is unavailable.(D) The degree to which available historical insurance data is not predictive of future costs.(d) Under no circumstances, however, will modeling be permitted for the reason that an individual company lacks data that is otherwise available.(e) Catastrophe models shall be run on the insurer's in-force business as of the end of the most recent year in the recorded period.(f) The use of catastrophe models shall conform to the standards of practice as set forth by the Actuarial Standards Board, and the applicant shall have the burden of demonstrating that: (1) the model is based upon what in the Commissioner's assessment is the best available scientific information for assessing frequency, severity, damage and loss,(2) the applicant's use of its selected model(s) produces the most actuarially sound estimate of projected catastrophe losses,(3) the projected losses derived from the model meet all applicable statutory, regulatory and other legal standards, and(4) the model incorporates what in the Commissioner's assessment is the best available scientific information on risk mitigation at the property, community, and landscape scales including, but not limited to forest management, prescribed fire, nature-based flood risk reduction, and risk mitigation initiated by local and regional utility companies.(g) This section is hereby expressly included within the range of regulations sections specified in subdivision (a) of Section 2648.4, notwithstanding that this section's adoption is subsequent in time to the adoption of, or the effectiveness of any amendments to, Section 2648.4.Cal. Code Regs. Tit. 10, § 2644.4.5
Note: Authority cited: Sections 1861.01 and 1861.05, Insurance Code; and 20th Century v. Garamendi (1994) 8 Cal.4th 216. Reference: Sections 1861.01 and 1861.05, Insurance Code; and Calfarm Insurance Company v. Deukmejian (1989) 48 Cal.3d 805.
1. New section filed 12-12-2024 pursuant to Government Code section 11343.8; operative 12/12/2024. Submitted to OAL for filing and printing only pursuant to Government Code section 11340.9(g) (Register 2024, No. 50).