It’s not just home insurance. Auto insurance is also increasingly hard to get in California, according to insurance agents who say they are struggling to find quotes for clients who would have easily gotten insurance just a year ago, as inflation and other factors take a toll.
“The withering availability of auto and home insurance in the state seems headed for a death spiral,” Mike D’Arelli, executive director of American Agents Alliance, an association of insurance agents that provides access to insurers as a wholesaler for its members, wrote in an email to The Chronicle.
“Never in my career have I heard from so many insurance agency owners and consumers, desperate to buy auto or home insurance, yet unable to purchase it due to lack of availability,” he continued.
Last month, State Farm announced it would stop writing new homeowner’s policies in California, setting off worries of shrinking insurance availability in the state, particularly in high-risk wildfire areas. The Chronicle also confirmed that Allstate quietly stopped writing new homeowners, condo and commercial policies last year.
In addressing concerns about homeowner’s insurance, California’s insurance commissioner Ricardo Lara has emphasized the role of climate change making coverage more tenuous across the country, not just in California. But with auto insurance, the climate change connection doesn’t hold — spurring insurers to blame what they say is dysfunctional regulation and consumer advocates to accuse insurers of withholding coverage as a political ploy.
These are the opening five paragraphs from Claire Hao, “It’s not just home insurance, Californians are struggling to insure their cars, too,” San Francisco Chronicle, June 20, 2023.
Her news story is long, good, and factual.
There’s one problem. In a 27-paragraph news story, Hao doesn’t get to the cause of the shortage until the 16th paragraph. Here it is:
Inflation has caused many costs associated with auto accidents to go up, such as car parts and hospital bills, insurance agents said. More significantly, they pointed to the fact that insurance commissioner Lara didn’t approve any rate increases for auto insurers from May 2020 to October 2022 — which Progressive’s CEO cited in an earnings call last year as an explanation for slowing business in California.
In short, price controls are causing the shortage.
And notice price controller Lara’s justification in the very next paragraph:
The rate moratorium was part of Lara’s efforts to compel insurers to compensate consumers he says were overcharged during the beginning of the pandemic, when many were not driving as much because of stay-at-home orders.
So they overcharged in 2020; maybe they did. What does that have to do with 2023? I’ll be charitable here about his motives and say only that Ricardo Lara doesn’t have a clue about how markets work.
READER COMMENTS
Mark Barbieri
Jun 22 2023 at 10:51am
It is definitely a problem caused by climate change. Y’all desperately need to fix your political climate.
MarkW
Jun 22 2023 at 11:16am
I suspect Ricardo Lara knows exactly what’s going on and that he will eventually approve the necessary rate increases (while loudly blaming climate change and ‘greedflation’).
MarkW
Jun 22 2023 at 12:05pm
Also, here’s a local Bay Area news story (uploaded to Youtube) about the problem with 150 comments, with only a brief and not very effective mention of price controls in the story (by an insurance industry representative) and no mention in the comments. Sigh. The more I see the general low level of economic and political understanding out there, the more I am surprised that our society works even as well as it does.
The insurance representative could have said something like “The problem is simple and there’s an easy solution. As everybody is aware, California fire risk is greater now than in the past, but the state of California won’t allow insurance companies to raise their rates to cover that increased risk. With appropriate rates, insurance companies would be willing to write the policies, but without those increased rates, insurance companies will have no choice but to continue to drop homeowners’ policies in California to protect themselves.”
National Jester
Jun 23 2023 at 3:08pm
I refuse to argue with an insane person, or an insane government for that matter. Kleptofornica thinks that it has a captive populace, however, over 500,000 residents have proven that to be a misnomer. And the people, jobs and businesses fleeing the state are the ones it doesn’t want to lose- people with high net worths who are not large consumers of government services.
john hare
Jun 22 2023 at 5:35pm
The core problem being government setting rates in the first place. Let the insurance companies charge what the market will bear, and what the competition will leave. Rates high enough and competition will arrive to correct the matter.
David Henderson
Jun 23 2023 at 11:14am
So true.
National Jester
Jun 23 2023 at 3:01pm
(Over) regulation in California, in all areas of the economy and society, will cause shortages and price increases. If someone can’t make a profit or recoup loses because a government (in this case California) won’t allow it, those businesses will eventually flee. The residents who pay the taxes and energize the economy of California are leaving, planning to leave, or are contemplating it. We left my native state because we evaluated all of the Government Forces acting upon the economy and society and decided that after over 60 years, we were better off leaving. Nearly 3 years later, we have been proven corect.
David Henderson
Jun 23 2023 at 4:11pm
I’m curious. To what state did you move?
Jose Pablo
Jun 23 2023 at 4:12pm
For a truly distorted property insurance market:
https://jamesmadison.org/why-your-florida-property-insurance-is-so-high/
I am not that familiar with this issue, except for the fact that in this market only makes sense to insure your property with Citizens (the “socialized homeowners’ insurance organization” from the article)
MarkW
Jun 23 2023 at 4:50pm
It also occurs to me that we must consider the possibility that Ricardo Lara knows exactly what he’s doing and is intentionally causing the renewal crisis to eventually drive homeowners into the arms of a state insurer of last resort, which he will then be able to portray as a savior for Californians were abandoned by greedy insurance companies. And the people affected will probably willingly buy it (both the insurance and the the cover story).
Recce
Jun 24 2023 at 4:25am
I believe many progressive insurance regulators have forgotten what insurance is. They regulate it like government payouts.
Simply put, insurance is SHARED risk by people, usually through a company, to compensate them in the case of losses from accidents, fires, sicknesses, or deaths, be it from auto, home, life, or other similar risks.
The company is usually a for-profit company and must be able to bear the cost of losses in addition to operating expenses and profit margin. If risks of losses increase, more income must be made. It’s basic free-market economics.
But it seems all too often that regulators, who dislike or even despise free markets, think companies should be non-profit coverers of all risks, even those not stated in a contract, at minimal costs. The result is all too indicative of socialist planning and operation – bankruptcy.
Comments are closed.