California Insurance Commissioner Ricardo Lara has announced a new regulation designed to strengthen the state’s financial resilience amid growing risks from climate change, cybersecurity threats, and emerging technologies such as artificial intelligence.
A Proactive Approach to Risk Management
The Long-Term Solvency Regulation equips the California Department of Insurance with expanded oversight tools to anticipate and address potential risks that could affect the state’s insurance market in the coming years or decades. Commissioner Lara emphasized the need for forward-looking preparedness, noting that regulators worldwide face mounting challenges from rapid climate and technological shifts.
“The landscape is changing quickly,” said Commissioner Lara. “We must expect the unexpected and ensure that companies can meet their legal obligations to consumers.”
Global Alignment and Collaboration
The regulation builds upon Commissioner Lara’s contributions to the International Association of Insurance Supervisors (IAIS), where he has helped shape guidance on climate risk and solvency standards. It aligns with global initiatives such as the UN’s Principles for Sustainable Insurance and the Sustainable Development Goals.
Financial regulators worldwide, including those in France, the United Kingdom, the Netherlands, Canada, and Singapore, have conducted similar long-term scenario analyses. California, as the world’s largest sub-national insurance market, aims to maintain an active role in these discussions to strengthen sustainability and risk preparedness.
Strengthening Oversight and Consumer Protection
Under the draft regulatory text, California-based insurers will be required to provide information to the Department of Insurance to enhance consumer protection and ensure market stability. The regulation draws on international climate risk frameworks and European banking standards.
Insurance companies — major institutional investors with $8.2 trillion in U.S. assets as of 2022 — must document long-term risks and opportunities for 2030, 2040, and 2050. These projections cover underwriting, investments, and operations that could be affected by climate change or technological developments.
Addressing Climate, Cybersecurity, and AI Risks
The regulation requires insurers to disclose strategies for mitigating climate-related risks such as sea-level rise, water scarcity, and agricultural shifts. It also focuses on transition risks tied to new technologies and the move away from greenhouse gas–emitting systems. Stress tests will assess potential impacts across multiple time horizons.
Additionally, the regulation incorporates oversight of cybersecurity and artificial intelligence, emphasizing data quality and the responsible use of large datasets.
Expert Perspectives
Industry and policy experts have voiced support for proactive planning.
Daniel Murphy of the World Economic Forum noted that the insurance industry must evolve “from serving as a passive safety net to becoming a proactive enabler of resilience.”
Butch Bacani of the UN Environment Programme emphasized that assessing multiple climate scenarios helps insurers enhance long-term resilience and support sustainable communities.
Dr. Sean Carmody of the Australian Prudential Regulation Authority described scenario analysis as a vital risk management tool for anticipating emerging threats.
Carolyn Kousky of the Environmental Defense Fund highlighted the importance of long-term thinking to maintain market stability amid escalating climate and technological risks.
Moving Forward
Commissioner Lara stated that the regulation reflects collective insights gained through international collaboration and years of regulatory experience. “Together, we confront ongoing challenges, including climate disasters, technological changes, data constraints, and the urgent need for modern oversight,” he said.
The California Department of Insurance has released draft regulatory text for public review and will host a workshop on November 14, 2025, to gather input from stakeholders.
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