CA insurance crisis: Thousands to lose coverage as two more insurers withdraw

[supernova87a]

State insurance regulators do have a legitimate purpose -- to prevent totally free-market (read, "lawless") behavior by insurance sales companies which happens when people can promise something in the future, take money for it now, but not deliver (ala the golden age of past American business hucksterism). Insurance as a product (or snake oil) is highly prone to this malfeasance when unregulated. Just like lotteries.

But on the other hand, because state regulators are slow to react or adapt to changing circumstances, they essentially freeze the market and the parameters allowed for sales of insurance in the past, for circumstances that may no longer exist.

So, new risks and willingness to insure are not accounted for, and companies no longer find it profitable to do business with rules of the past, in the present.

[randallsquared]

Taking money in exchange for future delivery and then not delivering is no more a “free-market behavior” than mugging is.

[woleium]

if only there was some way to ensure that the insurance companies pay, perhaps some kind of insurance insurance /s

[DoreenMichele]

To be clear: California home owners insurance.

One factor listed: post earthquake fires.

California has "fire season," not a season I ever wanted in my life. I wonder how much this is actually kind of an issue of global warming without being called that. My understanding is fires are getting worse on the west coast thanks to climate change.

[tehlike]

As far as i can tell, california forest management essentially ended up suppressing "good fires", and didn't do enough of controlled burns, which ended up accumulating a lot of fuel to cause large fires.

[rufus_foreman]

>> My understanding is fires are getting worse on the west coast thanks to climate change

So, without taking a position on whether fires are getting worse, how would that matter for the insurance markets?

There's a price that would make it work. Risks are higher, price of an insurance policy would be higher.

Insurance companies, left to their own devices, wouldn't leave markets due to that, insurance companies would price risks accordingly, which is the thing that insurance companies do. That's the positive externality of insurance companies, they give you information about risk.

Insurance companies leave markets when they aren't allowed to accurately price risk, which the state of California will not allow them to do.

[infecto]

Most insurance companies have made pretty public statements about states not giving them the ability to properly account for global changes in climate. I don't think it has anything to do with what you are saying. There is no conspiracy that "fire season" is a code word for "climate change". Fire season is a complicated problem with many inputs but I am sure the lack of proper fire management of these lands did not help it.

[RowanH]

This is starting to happen in New Zealand - either increased rates or simply no coverage. For different reasons - flood & slip events.

Re-insurance rates have gone through the roof through 3-4 weather events over the past 2 years. No signs of slowing down...

[ftufek]

It's not just the home insurance either. Last week, I bought a car and 3 of the big insurance companies refused to insure it without a 15 days waiting/underwriting period (Geico which I've had for many years, State Farm and Progressive). It was pretty surprising, it seems like they are trying to stop offering insurance without explicitly getting out of the state or something. Thankfully, AAA gave immediate coverage.

[JumpCrisscross]

"When setting their rates, insurance companies [in California] cannot consider current or future risks to a property. They can only use historical data.

...

Insurance companies say that because they can’t consider climate change in their rates, it makes it difficult to truly price the risk for properties."

https://apnews.com/article/california-home-insurance-wildfir...

[underseacables]

The FAIR plans are NOT fair. The insurance companies in the FAIR association have zero incentive to reduce rates, or even assist with mitigation recommendations. AB38 was supposed to fix this and force the insurance companies to recognize mitigation, but it is so overly broad, and watered down, that it means nothing.

[toomuchtodo]

https://archive.today/qDmVU

[theogravity]

I live in CA. We have a separate optional earthquake insurance that is maintained by some CA authority that is pretty expensive to buy into. Wonder why that can't be done with fires that originate from a forest if it's such a high risk?

[woodrow]

California law has established the FAIR plan [1] which is insurance of last resort for people who can't otherwise get fire insurance coverage for their home. It's a mandatory association of insurers who are operating in California.

It's my understanding that FAIR plans are very expensive compared to market-provided homeowners insurance. I presume this is because of adverse selection--if you buy FAIR insurance you're in the same risk pool as people who live in very high fire risk areas and have no other insurance options.

[1] https://www.cfpnet.com/

[infecto]

Because state run insurance is kind of a crock. These are programs put together for constituents to be pleased enough to vote in the next election cycle but will do little to help in an actual disaster. Its been years but the state run insurance had pretty limiting caps on both contents and the cost to rebuild. Seemed kind of pointless from a total loss perspective.

Edit: I would guarantee that the state run plan is both underfunded and not charging appropriate premiums for the given risk.

[bombcar]

The CEA is because earthquakes would bankrupt insurance companies because they strike multiple properties at once.

Something similar could be done for forest fires but hasn’t been setup yet.

The general consensus is CEA policies are underfunded and the expectations are that the feds will step in.

[jimrandomh]

This is what happens when government officials are too severely ignorant of economics, and try to make things cheaper by decreeing prices. They decree a price for something that is below what it costs to provide, and all the sellers stop selling.

[mistrial9]

the basic elephant in the room is that in the years 2017, 2018 and 2020.. there were unprecedented losses due to fire.

The right way to look at this negotiation.. a power-play between goliaths.. is that losses occurred on a scale and severity that no one predicted.. now, years later the markets are trying to find a way to do business in insurance

[infecto]

No, the elephant in the room is that in many states, including CA, insurance companies are severely limited at how much they can change their rates and what factors they can to determine risk/premiums.

Edit: I think there has been a number of comments from the big underwriters that they are unable to underwrite risk properly. This is not just a CA problem either, Florida is also a huge issue.

[teeray]

> is that losses occurred on a scale and severity that no one predicted

The house made some bad bets, the players “won” a few hands, and now the house is backing those players off while they figure out how to rig the game again.

[tekla]

Exactly what pretty much everyone expected (except for the people who were praying for a miracle from god)

[sp332]

What's the price fixing part?

[alephnerd]

The major reason insurers are leaving is because California has been considering enforcing Prop 103 recently, which has begun spooking insurance providers into leaving.

The Insurance Commissioner is also an elected position now, so there is an incentive for them to succumb to populist pressures to climb up the poltical ladder (eg. Governer, Senator, Congressmember)

Edit: listen to CharlesW. I'm incorrect on the fact that it wasn't enforced until recently

[dangus]

Huh? Prop 103 is from 1988.

The article cites wildfires and close proximity of buildings (again, wildfires) as reasons to withdraw.