Price Controls Cause Insurance Shortage in California
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.