california The insurance market is in turmoil. With the storms and flooding that hit the state earlier this year, $500 million When $1.5 billion Rising insured losses were the latest shock for Californians and insurers. Major insurance companies are now throwing in the towel. I am leaving the state because I have a business there and I am suffering a loss of money.
The Golden State is inherently a difficult place for insurance companies to do business because natural disasters are frequent. California It experiences more natural disasters than any other state, including wildfires, atmospheric river flooding, earthquakes, droughts, and landslides. However, this did not upset insurance companies. The problem stems from gross mismanagement and regulatory failures in the United States. california Department of InsuranceSuch bureaucratic inefficiencies are commonplace, but their impact is devastating the state’s insurance industry.
For some time now, the insurance industry has adopted a more cold stance. CaliforniaA wealthy insurance company focused on insuring expensive homes $ 1,000,000cooling in the state. AIG’s Private Client Group announced its decision to cease operations there in 2021, and in 2022 Chubb, “the world’s largest listed property and casualty insurer,” said it would limit its operations. California footprint.
Similarly California Auto insurance has also become an unfavorable proposition for insurers. Although the frequency of car accidents is increasing, some insurers pay more claims and costs than they collect premiums.data from General Insurance Association of America Auto insurance losses increased by 25% from 2020 to 2021, while premiums rose by only 4.5%. Auto insurance companies may challenge these bad outcomes and stop doing it.
Another indicator of a sick insurance market is california FAIR (fair access to insurance requirements) plan. This is a last resort for homeowners who have been turned away by private market insurers. And Californians definitely use it. Policy he has increased by 240% since 2017. Such strong growth in FAIR plans is a sure sign that the private market is dysfunctional.
that’s not the root of the problem California Dangerous place. This is how state insurance departments approve, or more generally disapprove, changes to premiums and rates.
Insurance companies analyze risks to calculate premium rates. They determine the premium they charge for losses and expenses in a process called ratemaking. In some states, California One insurance company must obtain approval from the state insurance department before it can change its price. Some industries, such as workers’ compensation, have seen rates decline in recent years thanks to reduced risks of working from home and improved work safety.
However, risks are increasing in other business sectors and insurers are pushing for higher premiums. Reasons for higher car insurance rates include higher vehicle repair or replacement costs and more frequent accidents. Insurers also said property insurance rates should rise as natural catastrophes are occurring more frequently.
California Insurance Commissioner As Things Worse Ricardo Lara For several years, he was reluctant to give approval to insurance companies to raise premiums. As a result, insurers choosing to operate in the following regions: California You are forced to sell your insurance at a rate below market value and are guaranteed to incur a loss. Insurers trying to charge an appropriate risk-adjusted rate are stalled by the passage of Proposition 103 of 1998. California Department of Insurance Approve the rate change.
Perhaps spurred by the threat of insurers leaving the state in recent months, the department has finally relented and approved some rate hikes.of October 2022after blocking them for two years, California regulators allowed Allstate Northbrook Indemnity Co. Increase car rates by the maximum allowed 6.9%.
Much of this confusion can be avoided if: California There was a commissioner who put more emphasis on state oversight $300 billion insurance industry rather than politics. In fact, Lara’s failure to take action to prevent the insurer’s exit from the state los angeles times Lara’s support to remain Commissioner in the recent election was called an “ethical blunder” and further undermined confidence in his ability to stabilize vulnerable people. California market.
Californians have already suffered enough from extreme weather events. What they need now is a commissioner who understands the importance of a more market-oriented environment and legislative change that gives consumers choice and encourages insurers not to withdraw their stakes.
jerry theodore that is of the R Street Institute Policy Director for Finance, Insurance and Trade.write him a letter at [email protected].
