October 14, 2023

Zesty AI and the California FAIR Plan

This just in – the California FAIR plan is to partner with Zesty AI. This announcements has come through multiple methods including an email sent out to California FAIR Brokers. The Zesty AI program will be used for the purposes of underwriting and premium determination.

In this short article we will discuss the little we know. What premium increases at renewal can be expected and some of the basic considerations used in this new AI tool. Lastly we will discuss much of what we do not know.

Zesty to Plan FAIR Rates:

“The FAIR Plan will begin using Zesty AI o assess each individual property’s exposure to wildfire. ” And It “is replacing the FAIR Plan’s current Fireline wildfire risk model…” This could potentially have a huge impact on premiums, according to our opinion. Zesty has an “enhanced capability to consider individual risk characteristics for a property…” FAIR believes that “the adoption of Zesty AI provides a more sophisticated approach to evaluating wildfire risk…”

The Zesty website itself states that FAIR “evaluat[ed] multiple solutions [and they]…selected Z-FIRE™, Zesty’s predictive wildfire risk model” On that site the President of FAIR is cited as saying “We can no longer rely on 30-year-old technology to understand modern climate phenomena.”

More on Zesty AI and FAIR:

FAIR certainly seems determined to utilize this new tool to create better underwriting rules. But how will those new underwriting rules change your california fair insurance premiums? That is not as clear. The insurer’s letter to brokers states that “the average rate change that was approved by the California Department of Insurance is 15.7%” but “the actual rate change customers will receive on their renewal policy will vary significantly based on the wildfire exposure…” We read this to mean that premiums will vary more house by house as opposed to what may have been zip code to zip code [or other subset of a larger area.] The broker letter does note “premium increases changes will be capped at +100%.“

The Zesty AI Z Fire Model:

The Zesty AI model used will be the Z-FIRE model. The California Department of insurance “has approved the use of Z-FIRE…” According to the Zesty site “The Z-FIRE model … considers the impact of homeowners’ mitigation efforts like fuel management or investing in fire-resistant building materials…”

Zesty AI Level 1 vs Level 2:

The Broker letter and Zesty Press Release leave more questions open than answered. More specifics are included in an attachment which is exceedinly unclear. However the broker attachment does state that “Zesty provides CFP with two scores (Level 1 and Level 2)” and “Level 1 determines the probability of exposure to wildfire on a scale of 1 to 10″ while “Level 2 determines the individual’s property’s vulnerability on a scale of 1 to 10.”

Z Fire Model Level One: “probability”

Z Fire Model Level Two: “vulnerability”

How Much will FAIR Premiums Change due to Zesty?

How much this will cost properties more in Marin and Sonoma as oppossed to Nevada and Placer counties is anyone’s guess frankly. We will share more information concerning this new program as they become available. As we stated previously in the article premiums for FAIR are set to rise about “15.7%” and will be capped at +100%.” However it does seem, in our opinion that more premium variation from one house to another may take place.

When will Zesty Start Being Used with the California FAIR Plan?

According to the documenation that we have, Zesty will start working on both “November 1, 2023” for quotations and “December 1, 2023, or later” for policies. What exactly happens in between those dates is far less clear and open to interpretation.

FAIRs Use of Artificial Intelligence:

Left out of much of this discussion is the use of Artificial Intelligence and the potential benefits and drawbacks of AI. Hidden behind the term AI, some even forget that AI is artificial. Not real, computer generated. TechTarget defines AI as “Artificial intelligence is the simulation of human intelligence processes by machines, especially computer systems. ” What are the consequences of turning these decisions over to computers? What are the ethics of it? How about the legal considerations?

There are multiple other questions we have. Is there a backup plan for when this tool makes mistakes as it likely will? Who is in charge of this? We would like to see more example of premium changes?

FAIR, Zesty, and AI – A Brave New World:

The world of insurance is certainly changing. New solid tools are typically welcome. Most tools that create more accurate pricing are welcome. However this new tool – is hard to know. Will Zesty make the California FAIR plan more expensive in some situtations? I do believe it will. The jury on the decision to move to new platform will be out for a long long tim.

Thank you for reading about this new underwriting tool from the California FAIR plan.