CA Financial Institutions Must Pay Interest on Insurance Claim Payouts

In the wake of destructive wildfires, the California Legislature passed a law requiring financial institutions that make or purchase loans secured by one- to four-family residences located in California to pay at least 2% simple interest, per annum, on hazard insurance proceeds it holds in a loss draft account pending property repair or rebuilding. Unlike funds held in trust accounts for the payment of taxes and insurance premiums, hazard insurance proceeds may be held in an interest-bearing account at a federally insured depository institution.

The law applies broadly to depository and non-depository financial institutions and became effective on August 29, 2025. For funds currently being held in a loss draft account, interest starts accruing on the effective date of the law.