November 19, 2025

California proposes greater ‘solvency’ oversight of insurers; industry balks

In a year that began with devastating wildfires, California is proposing a disclosure regime to address the long-term solvency of insurance companies.

Insurance Commissioner Ricardo Lara unveiled the proposal last month and it focuses heavily on climate change data and policies.

The proposed regulation aims to strengthen the long-term financial oversight of insurers as the state confronts growing climate threats, rapid technological change and instability in global insurance markets.

“Regulators around the globe are facing significant challenges due to rapidly changing climate conditions, which impact market stability and affect both affordability and availability,” Lara said in a statement. “In this rapidly evolving landscape, we must expect the unexpected.”

The draft Long-Term Solvency Regulation would give the California Department of Insurance new tools to assess risks that could affect insurers over the next several decades, including climate-related disasters, emerging technologies, cybersecurity issues and shifts in global markets.

Unsurprisingly, consumer advocates are skeptical and optimistic, while industry groups are skeptical and resistant. The CID held a workshop Friday on the proposal and is accepting public comments.

“I think it will be a good step in the right direction of trying to get a handle on these climate related risks, especially in California, where there’s so many obvious problems in the market,” said Alex Martin, policy director for climate and finance at Americans for Financial Reform, in an interview with InsuranceNewsNet.

The proposal aligns with Lara’s work with the International Association of Insurance Supervisors, where he has participated in the development of climate-risk guidance and global standards. Under the rule, California-based insurers would be required to submit forward-looking documentation on physical, financial and technological risks projected for 2030, 2040 and 2050.

Regulators from around the world, including the Bank of England, Banque de France, the Netherlands’ central bank, Canada’s insurance regulator and the Monetary Authority of Singapore, have engaged in climate scenario analysis, the CID said in a news release.

California, home to the world’s largest sub-national insurance market, must take part in those international efforts to evaluate long-range solvency threats, Lara said.

Requirements for insurers

If finalized, insurers would be required to provide information on:

Climate-related physical risks, including extreme weather, sea-level rise, water scarcity and agricultural shifts.
Transition risks, such as the financial impacts of moving away from carbon-emitting technologies.
Technology-related risks, including cybersecurity, data quality and the use of artificial intelligence.
Investment risks, reflecting the industry’s role as a major U.S. institutional investor with $8.2 trillion in assets.

The rule would also introduce “stress tests” for climate-related scenarios across several future time horizons.

Industry lobbyists have several concerns with the proposal. For starters, the long-term planning requests might not be realistic, wrote Mark Sektnan, vice president, state government relations, for the American Property and Casualty Insurance Association.

Property and casualty insurers mainly operate on a short-duration business model, and long-term planning is generally three to five years, he explained in a comment letter.

“It is impossible to model future management actions when there are so many unknowns,” Sektnan wrote. “While insurers should consider the impact future risks, we believe that it is important for management to focus internal risk management resources on more immediate financial and operational risks rather than prioritizing long-term climate risk or emerging risk analysis that is highly uncertain and unlikely to produce actionable insights.”

Climate collection effort

The Federal Insurance Office battled the National Association of Insurance Commissioners for a couple of years over the collection of climate data from insurance companies. In March 2024, both sides agreed to partner on the data collection effort.

The NAIC will be collecting, on behalf of participating state insurance regulators, ZIP Code-level data from the largest homeowners insurers, the Treasury Department announced in a news release.

The FIO will use this data to conduct a nationwide assessment of climate-related financial risks to consumers across the United States, the release stated. There has been little information released about the climate collection effort since it was announced.

The proposed California threshold of $50 million in nationwide premium to report data is “much lower” than what is required under Own Risk and Solvency Assessment (ORSA) and the NAIC Climate Disclosure Survey, Sektnan pointed out.

“This would require many smaller insurers to develop long-term modeling capabilities or engage modeling experts that will create substantial costs and administrative burden that are likely to exceed the benefits,” he said.

Like many consumer advocates, the AFR is pushing for more specifics on climate change and other data-collection efforts, Martin said. Regulators have a dicey history trying to require climate reporting from private industry.

The Securities and Exchange Commission proposed a rule on climate risk disclosures, and a lawsuit quickly followed, with the Trump administration declining to defend it.

California is the perfect state to require climate and other solvency reporting, Martin said. The state suffered through costly and destructive February wildfires that prompted State Farm to seek emergency rate hikes to offset some of the insured losses, estimated at between $30 and $45 billion.

Despite the escalating climate change damage, also seen in Louisiana and Florida, insurers have not shown any willingness to support mitigation strategies financially, Martin noted.

“Our position is that that should be much more robust, and insurers should think of the long-term insurability of the properties and customers that they serve as partially their responsibility, too,” he said.