Great moments in denying reality

California has some of the strictest insurance regulations in the country. It is the only state where insurers are not allowed to base their rate increases on catastrophe models — forward-looking risk calculations — or the rising cost of reinsurance premiums, according to both Zimmerman and the Department of Insurance.

Under current regulations, insurers are only allowed to use catastrophe models to calculate earthquake insurance rates. One proposed change under the Sustainable Insurance Strategy would extend this to wildfire risk, as well as the risk of fires following earthquakes and terrorism. Another regulatory proposal yet to be released would also allow insurers to include reinsurance costs in interest rate increases, the department previously announced.

The above quote is from Megan Fan Munce: “A major home insurer in California could resume writing new policies. This is what it would take,” San Francisco ChronicleApril 24, 2024.

In case you haven’t heard, price controls on home insurance are causing some insurers to not write insurance policies for new homeowners and, in some cases, to cease operations in California. The two paragraphs above outline an important way in which prices are controlled. Insurers may not base their rates on expected risks.

While my wife and I are lucky because State Farm has said it will update our policy, I am not so lucky in any other role. I am a limited partner who owns about 1% of a large apartment complex in Bakersfield. Our insurer has informed the general partner that he will not renew our insurance and he has not been able to find any insurer willing to do so.

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