California’s progressive leaders have a nasty habit of evading responsibility on key issues by blaming problems on — drum roll please — climate change. They do this when it comes to droughts or floods, even though both issues could be mitigated if the state had built sufficient infrastructure projects. They’re doing it again as the state faces an unprecedented insurance crisis.
The latest news is State Farm General Insurance Co., which provides 21 percent of state homeowner policies, announced it is non-renewing 30,000 home-insurance policies and getting out of the apartment business. In May, the company stopped writing new policies. Other property insurers have also stopped writing policies or are exiting California.
As a result, many California homeowners are struggling to find home insurance and the state’s insurer of last resort, the FAIR (Fair Access to Insurance Requirements) Plan, is so overburdened there’s talk of it failing. Climate change might exacerbate the conditions that require higher rates (wildfires, drought, flooding), but that’s not the reason for this crisis.
The state’s prior-approval insurance rules, imposed by voters in 1988’s Proposition 103, severely restrict the ability of insurers to adjust rates.
Given the hurdles of getting rate approvals, insurers are fleeing California rather than risking their financial reserves. Nevertheless, there’s plenty state officials can do to alleviate the situation within the initiative’s framework.
During a hearing at the Little Hoover Commission, California’s watchdog agency, former Insurance Commissioner Dave Jones said California is “marching steadily towards an uninsurable future.”
As the Sacramento Bee summarized, Jones believes “world leaders aren’t acting aggressively and fast enough to reduce greenhouse gas emissions.”
Gov. Gavin Newsom and current Commissioner Ricardo Lara have likewise pointed to climate change as the insurance culprit. But this isn’t an either/or problem. They have to deal with reality as it is and the reality is that state policies have distorted the insurance market in California.
They can and must address problems directly linked to climate change. They can and must also get real about the need to let insurers do their job.
Lara has promised reforms, but none have materialized and few remove regulatory logjams that restrict competition.
Insurers are perfectly capable of setting rates to match risks. Allowing them to do so is a far better strategy than blaming “world leaders” for not addressing climate change.
It’s time for Lara, Newsom and the Legislature to get busy and stop with the excuses.
