After helping drive major insurers to flee the state, red tape from California’s liberal insurance regulators is poised to hamper rebuilding Los Angeles-areas communities in the wake of devastating wildfires.
The Los Angeles wildfires had burned over 40,000 acres of land mass as of Monday, destroying over 10,000 structures and forcing more than 100,000 to flee their homes. When the fire is finally contained, many Californians will be unable to rebuild the homes they lost, as a flood of home insurers have exited the state in recent years due largely to extensive government regulation, leaving many Golden State residents stuck with government-backed insurance of last resort, or, worse, no insurance whatsoever.
State Farm announced it would drop homeownership insurance coverage for tens of thousands of Californians in 2023, with the Pacific Palisades — one of the areas hardest hit by the wildfires — experiencing more policy non-renewals from State Farm than anywhere in California. The reason for the widespread scrapping of home insurance policies, according to E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, was “overregulation.”
“Overregulation was a major contributor that forced many homeowners to ‘go naked’ according to industry lingo, meaning roll the dice with no insurance,” Antoni told the Daily Caller News Foundation. “It’s going to be very scary when we find out how many folks lost their homes with no insurance and won’t be able to afford to rebuild.”
California’s Proposition 103 requires insurers get approval from the state before setting property insurance rates, which resulted in a norm of rate increases being capped at 7%. The regulation made it difficult for insurers to adapt to changing market conditions, and ultimately helped force many out of the state entirely, according to Andrew Siffert, senior vice president at global insurance broker BMS Group.
“Proposition 103 requires insurers to get approval from CDI [the California Department of Insurance] for any rate increases, which can be a lengthy process,” Siffert told the DCNF. “Over time, this regulation has not kept up with the cost of doing business in California, and has made it difficult for insurers to adjust premiums to reflect the increasing risks and costs associated with natural catastrophes like wildfires. As a result, insurers have taken their products and capital to other states where they can maintain their profit margins.”
Like State Farm, Allstate announced it had stopped writing new California home insurance policies in 2023, returning only once the state abandoned its traditional 7% cap and approved Allstate’s request to increase homeowner’s insurance premiums by an average of 34% in August.
“Another form of overregulation involves restrictions on underwriting practices,” Peter Earle, senior economist at the American Institute for Economic Research, told the DCNF. “California prohibits insurers from using certain risk-based factors, such as credit scores or other predictive analytics, which are commonly used in other states to assess risk more accurately. This limits insurers’ ability to differentiate between low- and high-risk policyholders, forcing them to spread costs unevenly.”
No comments:
Post a Comment