California Won’t Let Homeowners Insurance Companies Raise Rates, so They’re Leaving the State Instead

Reading insurance trade magazines isn't everyone's idea of ​​a good time, but every Californian should pay attention to the latest news in that mysterious world. “State Farm will recall 72,000 California insurance policies,” A screamed. reinsurance news Topic, State Farm provides about 21 percent of state homeowners policies, so this is big news. Last year, it stopped writing new homeowner policies. It is now “non-renewing” existing policies and exiting apartment policies altogether.

The two magazines' stories of the state's crisis have also made it into the mainstream media. “California's ongoing home insurance crisis is about to deepen as another company has announced its withdrawal from the state due to profitability concerns,” Explained newsweek Earlier this month, reporting on the exit of Texas-based American National.

However, the California Department of Insurance website top item Claims that Insurance Commissioner Ricardo Lara “protected policyholders affected by wildfires from non-renewal.” How is it working for us? The state's insurance problems have plagued homeowners adjacent to wildfires for some years, but are increasingly spreading to homeowners in non-wildfire adjacent areas. The state's “security” are window dressing.

I don't live near any forests, yet the rates almost doubled in my latest renewal. After talking to my insurance agent, I decided to pay the higher premium and am grateful that I received a renewal. A growing number of Californians must now rely on so-called fair planning (Fair Access to Insurance Requirements), a state-created, industry-funded insurer of last resort – which only provides barebones coverage.

The burden on the FAIR plan has become so severe—there are three times more uninsured than it was designed to cover—that there is open matter About what happens if it fails. Insurance may be boring, but it is a necessity for almost everyone. Without a functioning insurance marketplace, California’s economy is at risk. Yet the state's response has been as productive as its response to most other crises.

Instead of focusing on critical insurance, Governor Gavin Newsom has invested his political energy Passing a $6.4 billion mental-health measure (Proposition 1) and polishing his reputation on the national stage. Lara announced some reforms, but they are just proposals (and impose new burdens on insurers) – and they avoid the root of the insurance problem, including bureaucratic barriers that distort markets and reduce competition. They will not do what is needed—speeding up the review process.

State leaders are behaving as if this is an unexpected storm, but it is a storm that has been brewing for years. “California's one-two punch – forcing companies to write riskier policies while also limiting their ability to charge market rates – has insurers in addition to stopping writing new policies. There will be no option left,” I wrote In 2021. Last March, I warned insurance companies “run away quietly” State. After two months, he stopped keeping quiet about it. In May, State Farm announced a pause on writing new homeowners policies.

last September, calmatters informed of On the state's response. Legislators, dogged by criticism from consumer groups, lawyers and anti-trade mobs, failed to pass a rescue plan. But Lara announced a reform that would have made it easier for insurers to raise rates to meet market conditions in exchange for offering policies in wildfire-prone areas but nothing was ever implemented. “Can this plan fix California's insurance crisis?”. The title asked. I think we know the answer.

in your latest rate filing Available on the Department of Insurance's website, State Farm General Insurance Company (the insurer's California homeowners company) reported that, despite recent rate increases, its surplus is low – leaving an unacceptable level of risk. Obviously, insurance companies are in the business of writing insurance policies, but they cannot afford a level of risk that could deplete their ability to pay out claims. They cannot put the business at risk of bankruptcy.

Basically, state regulations have not enabled insurers to adjust pricing to reflect inflation and market conditions over time. Sure they got the occasional rate bump like we see now, but state control has turned pricing into a byzantine regulatory process rather than a simple business decision. the problem is related proposal 103A 1988 ballot measure that gave the Insurance Commissioner the power to approve and withhold rates.

Elected commissioners have little incentive to approve rate increases. Consumer groups are essentially paid oppose rate increases, which makes for a long, complex and adversarial process. In most industries, companies set the prices they want and competition regulates prices. Imagine if you had to petition the government every time you wanted to adjust prices in your area.

Even with Proposition 103, the state can implement reforms that will help the market function at a tolerable level. state Farm argued that the reduction in its capital is “an alarm signaling the serious need for rapid and transformative action, including the critical need for expedited review and approval of currently pending and future rate filings.” Will Lara and Newsom listen? They haven't done so despite years of dire warnings, so temper your expectations.

this column was first published In the Orange County Register.