The California Department of Insurance (CDI) released a draft regulation designed to prevent future insurance crises stemming from cyberthreats, climate disasters, and artificial intelligence misuse.
The regulation would require insurers to document risks and opportunities related to technology, innovation, and climate-related physical perils. Companies must include projections for 2030, 2040, and 2050, according to the CDI.
“Technological advancements are advancing faster than our departmental resources, highlighting the shortcomings of our outdated regulatory frameworks,” insurance commissioner Ricardo Lara said in a statement. “It is crucial to anticipate future risks to improve preparedness and mitigation efforts, as well as to ensure that companies can meet their legal obligations to consumers.”
The proposal aligns with the International Association of Insurance Supervisors and adopts standardized climate risk disclosures developed by global regulators. It also incorporates the United Nations-led Principles for Sustainable Insurance and the Sustainable Development Goals.
Under the draft, insurers would need to analyze material risks including cybersecurity, AI use, and data quality. Companies would be required to outline strategies to mitigate climate-related risks such as sea-level rise, land-use changes, water availability variations, and agricultural productivity shifts.
The regulation would also mandate reporting on transition risks associated with emerging technologies, focusing on the shift away from greenhouse gas-emitting industries. Insurers would need to stress test climate risk scenarios for 2030, 2040, and 2050.
“This regulation embodies my insights gained over the years, alongside those of my international regulatory colleagues,” Lara said. “Together, we confront ongoing challenges, including climate disasters, technological changes, data constraints, and the urgent need for modern oversight and regulatory reform to safeguard our consumers and markets.”
The CDI is hosting a public meeting Nov. 14 to gather feedback on the draft regulation.
The American Property Casualty Insurance Association said it was reviewing the proposal and would work with the CDI to ensure data requirements do not place undue burden on smaller companies or duplicate existing reporting obligations.
“APCIA will work in collaboration with CDI to ensure the data requirements don’t place an undue burden on smaller companies or duplicate existing reporting obligations,” Mark Sektnan, APCIA vice president of state government relations, said in an email to BestWire.
The draft follows a series of major insurance reforms passed this year, including FAIR Plan changes allowing the state-backed insurer to access additional capital through bonds or credit lines.
What are your thoughts on the recent proposed changes? Share your insights in the comments below.
