Mercury Seeks 6.9% Rate Increase Based on New Cat Modeling Regulation

Mercury Insurance submitted a filing based on California’s new regulation enabling catastrophe modeling to be included as a factor in ratemaking.

The filing is reportedly the first to use the Verisk Wildfire catastrophe model, which is designed to help estimate the impact of future catastrophic wildfire events.

The Verisk Wildfire Model for the United States was reviewed through the new Pre-Application Required Information Determination Procedure. The California Department of Insurance reviewed the model in July.

Once approved, the Mercury filing will allow the carrier to grow its footprint in higher wildfire risk areas, according to the company.

The rate filing calls for an overall average rate increase of 6.9%, which the company said reflects increased inflationary cost pressures and exposure related to catastrophic events such as wildfires.

According to Mercury, the rate increase won’t be allocated evenly across all policyholders, with residents in higher risk areas possibly getting larger increases and customers in lower risk areas could seeing decreases.

Mercury also plans expand existing discounts for homeowners who take steps to reduce wildfire risks, such as clearing vegetation, upgrading vents or using fire-resistant construction materials.

Rising rates and lack of availability have driven the state into a homeowners insurance crisis, pushing people in the insurer of last resort, the California FAIR Plan, and into surplus lines.

The pain inflicted on California’s property market has grown steadily in the last few years after a series of devastating wildfire seasons–CalFire data show that seven of the state’s 10 most destructive wildfires have occurred in the last 10 years. That trend has been followed by numerous carriers pulling back from writing new policies in the state and seeking large rate hikes.

Several big carriers, including State Farm, Allstate, Farmers, and Mercury, reported paying more than $1 billion in claims from the wildfires.

Catastrophe models are accepted as a part of ratemaking in all states. The Verisk Wildfire Model is already approved by the Nevada Division of Insurance.

Topics Trends Legislation Pricing Trends