But on the other hand, because state regulators are slow to react or adapt to changing circumstances, they essentially freeze the market and the parameters allowed for sales of insurance in the past, for circumstances that may no longer exist.
So, new risks and willingness to insure are not accounted for, and companies no longer find it profitable to do business with rules of the past, in the present.
One factor listed: post earthquake fires.
California has "fire season," not a season I ever wanted in my life. I wonder how much this is actually kind of an issue of global warming without being called that. My understanding is fires are getting worse on the west coast thanks to climate change.
So, without taking a position on whether fires are getting worse, how would that matter for the insurance markets?
There's a price that would make it work. Risks are higher, price of an insurance policy would be higher.
Insurance companies, left to their own devices, wouldn't leave markets due to that, insurance companies would price risks accordingly, which is the thing that insurance companies do. That's the positive externality of insurance companies, they give you information about risk.
Insurance companies leave markets when they aren't allowed to accurately price risk, which the state of California will not allow them to do.
I'm not arguing with you nor rebutting your claim. I haven't studied the situation in California and have no opinion about what is going on there.
But I did work in insurance for a few years and insurance began as a form of betting or gambling. If the possibility of X happening is too high, it's no longer a gamble.
So as the odds of being required to payout approaches 100 percent, they stop covering it because that's not what they do.
This is why flood insurance in the US is provided by the federal government, not private insurers: Because most land with residential development floods. It's not a question of if but when, how often and how badly.
Hurricane Andrew also significantly impacted the homeowners insurance industry. I don't recall the details at the moment, but this is not without precedent.
It doesn't require any conspiracy theories or intentional deceit for people to start going "Oh. X thing. That's too much risk." without them thinking to explicitly state "...because the context has changed since my dad or grandad founded the company, so the risk he felt ok with now feels like too much risk to me."
People often don't spell everything out when talking about an issue. Humans are routinely kind of blind to their own implicit assumptions and the need to communicate them.
Re-insurance rates have gone through the roof through 3-4 weather events over the past 2 years. No signs of slowing down...
...
Insurance companies say that because they can’t consider climate change in their rates, it makes it difficult to truly price the risk for properties."
https://apnews.com/article/california-home-insurance-wildfir...
It's my understanding that FAIR plans are very expensive compared to market-provided homeowners insurance. I presume this is because of adverse selection--if you buy FAIR insurance you're in the same risk pool as people who live in very high fire risk areas and have no other insurance options.
Edit: I would guarantee that the state run plan is both underfunded and not charging appropriate premiums for the given risk.
I'm in another state and my home insurance has been increasing but nowhere near what it sounds like is happening in California and Florida.
Sure. But Sacramento has a secret disaster recovery plan: Appeal to Washington for a bailout.
Something similar could be done for forest fires but hasn’t been setup yet.
The general consensus is CEA policies are underfunded and the expectations are that the feds will step in.
The right way to look at this negotiation.. a power-play between goliaths.. is that losses occurred on a scale and severity that no one predicted.. now, years later the markets are trying to find a way to do business in insurance
Edit: I think there has been a number of comments from the big underwriters that they are unable to underwrite risk properly. This is not just a CA problem either, Florida is also a huge issue.
The house made some bad bets, the players “won” a few hands, and now the house is backing those players off while they figure out how to rig the game again.
The Insurance Commissioner is also an elected position now, so there is an incentive for them to succumb to populist pressures to climb up the poltical ladder (eg. Governer, Senator, Congressmember)
Edit: listen to CharlesW. I'm incorrect on the fact that it wasn't enforced until recently
The article cites wildfires and close proximity of buildings (again, wildfires) as reasons to withdraw.
It's never actually been enforced before in CA.
Edit: listen to CharlesW. I'm incorrect on the fact that it wasn't enforced until recently
[0] - https://www.politico.com/newsletters/california-climate/2023...
Right now, California does not allow pricing of insurance policies except on a few non-standard factors. These factors do not include "proximity to wildfire risk areas", which means that insurers lost a lot of money in the big wildfires of 2017-2018. The state refuses to change, so the insurers are pulling out of the market.
Framing this as "because of wildfires" is technically true, but misses the point. The problem is that insurers in CA can't accurately price for wildfire risk.
