In America, if a business can’t make money, it has no obligation to offer its service, at least for now. In California, after years of wildfires wiping out their assets, insurers aren’t allowed to raise premiums to account for the risk. According to The Wall Street Journal, “state Insurance Commissioner Ricardo Lara won’t let insurers raise premiums to account for increasing wildfire risks. California is the only state that requires insurers to set premiums based on historical experience.” The Journal continues:
That means insurers must base rates on prior decades when wildfires were less frequent and intense, and they can’t consider how drought will increase their future probability. While progressives demand that businesses account for climate change, California’s Democratic leaders won’t let insurers do so. Who are the climate deniers?
Insurers also cite a new mandate by Mr. Lara to provide discounts to homeowners who implement 12 wildfire “mitigation measures,” such as clearing vegetation from under decks. The regulation is intended to reward homeowners who protect their homes, and some insurers already offer lower rates for fire-resistant homes.
Yet according to a Milliman report in April, insurers worry Mr. Lara won’t let them raise rates on other homeowners to offset these mandatory discounts, which “will erode the already inadequate rate levels for wildfire risk in California and exacerbate the state’s insurability crisis.” That means more homeowners won’t be able to find coverage.
Reinsurers are also limiting exposure and raising prices in California because of wildfires. Surging construction costs don’t help. The average cost of building a new home in California excluding land is $1.35 million. Blame the state’s burdensome building codes, permitting red tape, and high energy and labor costs. As the Chubb CEO said two years ago, “we cannot charge an adequate price for the risk.”
Mr. Lara is responding by lashing out at insurers. While “insurance companies prioritize their short-term financial goals, the long-term goal of the Department of Insurance is protecting consumers,” a California Department of Insurance spokesperson said in response to State Farm’s announcement.
Insurers aren’t prioritizing short-term profits. They are protecting their customers, investors and creditors. Mr. Lara isn’t helping Californians by driving away insurers, which will reduce competition and force more customers into a state-established insurer of last resort (backed by insurers) that provides skimpier and more expensive coverage.
Meanwhile, another state often hit by devastating natural disasters, Florida, is reforming its laws to keep insurers in the state. The Journal concludes:
Florida last year passed legal reforms to help keep property and casualty insurers in the state. If Democrats in Sacramento believe their climate-change hype, they’ll strengthen the state’s insurance market rather than tilt at windmills.
