Why is it that insurance companies no longer want to provide insurance in the once prosperous Golden State marketplace? Why must California independent insurance agents and brokers perform triage on policyholders every day to find them basic coverage at an inordinately high price to insure a minimal of their financial assets? And most importantly, why is no one in government responding appropriately to the availability crisis now confronting California’s insurance consumers?
What's The Answer?
The answer is not confined to Prop 103 - the outdated, legacy law enacted in 1988 that requires a politicized government bureaucracy to approve almost all property/casualty insurance rates before an insurance company can sell policies in California – but has become centered on the Insurance Commissioner’s refusal to evaluate rate change requests, and to give insurers any opportunity to earn a fair return for the massive exposures they would otherwise be willing to underwrite.
Prop. 103 was always a fraud on voters—promising free money in the form of premium refunds that were unconstitutional. But today, the combination of the Commissioner’s inactions and the rigid limitations in the law have produced a crisis in availability that denies insurance consumers the ability to insure their biggest financial asset – their homes and businesses.
Not An Impossible Challenge!
Without question, insuring fire risks in California is a challenge, but it’s not impossible. In fact, insurance companies are actuarially figuring out how to make it work through new models that better spread risk during an unprecedented time of climate change, forest mismanagement, utility negligence, and significant population growth (and building) in the wildland-urban interface. Some insurers are ready to begin offering coverage in California through these new models, which would take pressure off the California FAIR Plan, which was never intended to become a market of first resort. Unfortunately for insurance consumers, insurance companies face a regulatory environment in which years pass with no action on rate increase requests, and politicians abuse their discretion to suppress rates below levels that are actuarially sufficient to underwrite the massive claims that wildfires are now producing.
Economic theory says the best way to organically drive down price is by market supply over demand. That is how we solve California’s insurance market problems. Streamlining the months and years of bureaucratic, prior-approval rate hearings in California would provide insurance companies the flexibility, timing, and incentive to see the Golden State as a welcoming insurance landscape once again. Most importantly, it would result in more companies offering coverage that would drive competition for the ultimate betterment of insurance consumers.
Something Must Be Done!
What we don’t understand is why California Insurance Commissioner Ricardo Lara and state lawmakers don’t do something about this on behalf of the state’s insurance consumers.
Well, enough is enough! IIABCal continues to challenge state leaders, and has engaged outside legal counsel to assist us in developing a comprehensive legal strategy, with regulatory, legislative, and potentially even judicial components, in the fight on behalf of California insurance consumers so they can once again live in a state with a viable, competitive insurance marketplace. Stay tuned! More details shortly!