State Farm, Allstate, Farmers and AIG are no longer writing homeowners policies in California and they’re not renewing those that come up for renewal. Many worry that even more insurers are soon going to leave the personal lines market in the Golden State.
The reasons are many but can be boiled down to the California Department of Insurance not allowing price hikes that make accepting wildfire, and other risks, worth taking and to insurance regulating Proposition 103.
That’s the conclusion of many in the industry including David Sampson, the president and CEO of the American Property Casualty Insurance Association (APCIA).
Sampson recently issued a white paper on the problems facing insurers in California. He said they don’t want to leave one of the nation’s biggest, and most important, markets. However, they cannot get the rate support they need to accept the risk before them.
“The California Department of Insurance has recently recognized the need for rates to start catching up with actual and future risk, but the problems with the underlying, outdated regulatory scheme create larger challenges,” Sampson wrote in his statement.
The APCIA — via Sampson’s statement — listed some factors that have led to the implosion of California’s personal lines market:
- The longest and most severe drought in recorded history
- Historic wildfires in 2017, 2018 and 2020
- The highest inflation rate in 40 years
- Serious supply-chain disruptions
- Abuse by the legal system
While Sampson doesn’t amplify what he means by the last bullet point, the abuse is a perfect storm of trial lawyers pushing for legal reforms that benefit their pocketbooks, and progressive members of California’s Legislature, and other government officials and bureaucrats buying into those schemes.
Sampson and the insurance company members of the APCIA understand the struggle homeowners face in obtaining affordable insurance. And those homeowners want insurers to be able to deliver when a they have a disaster.
To do that, companies have to be financially able to do so.
“This means insurers need tools to manage catastrophic risk and California’s outdated regulatory regime is not providing those tools,” Sampson added. “Insurers are committed to California, and we look forward to working with the California Department of Insurance and policymakers to enact real solutions so the Golden State can have a functioning and thriving insurance marketplace that benefits policyholders.”
Those solutions — Sampson said — need to include:
- Allowing the use of forward-looking catastrophe modeling in rate filings
- Allowing the use of reinsurance in ratemaking
- Reforming the rate filing process more broadly, to complete reviews within statutory timeframes
- Reforming the California FAIR Plan assessment process to reduce exposure to the shrinking number of private insurers remaining in the marketplace
- Advocating for expanded wildfire mitigation to reduce the risk and make coverage more available in high-risk areas
In conclusion, a big part of the decision State Farm and others made to leave the market is Proposition 103. Sampson said it is insurance constricting, outdated and needs reforming.
“California’s regulatory framework (i.e., Proposition 103) is 35 years old and is ill-equipped to handle the increasing challenges wrought by climate change, and is resulting in the insurance market upheaval California faces today. It is time to modernize Proposition 103,” Sampson concluded
Source link: APCIA — https://bit.ly/3XLjHOy
