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California’s Property Insurance Crisis: Over-Regulation

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A top broker in the state of California has publicly blamed the state’s insurance commissioner, Ricardo Lara, for the rising costs and decreasing availability of property insurance in the state.

Jamie Reid, chairman of the board at C3 Risk and Insurance Services, said, “At the core, the insurance commissioner is exponentially compounding the problem.”

Inaction in the face of rising property insurance premiums?
Reid claims that Lara has ignored requests from the insurance sector for rate hikes while knowing that extreme weather events linked to climate change are to blame for massive property losses and destruction in recent years.


“I have [spoken to] executives from insurance companies saying the department of insurance isn’t responding to requests to increase rates,” he explained. However, “the department will approve any rate decrease relatively quickly if they file for it.”

The insurance commissioner is an elected executive position responsible for, among other things, vetting and ultimately authorizing premium hikes for insurance providers. According to Insurance Business, Reid has made contact with Lara in an effort to discuss the industry’s concerns.

According to Reid, “[the insurance commissioner] is a 100 percent political position.” He should “allow free enterprise to set price” since “this is a business process.”

Consumers are suffering more as a result of inaction on insurers’ rate increase requests, Reid argued, because companies are unable to sell goods at a loss and are instead opting to stop writing new business or leave markets altogether.
The insurance firms “are saying we’re not going to sell the product at all” because “he’s not approving rate increases,” Reid explained.

Consumers may seek out the non-admitted market to make up for any gaps in their property insurance. However, as Reid pointed out, there are sometimes admitted insurers whose filing rates are greater for riskier clients.

Say you have a soft spot for Coke. You dine out, and the bill comes to $2.50,” he explained. “One day, the restaurant announces, ‘Sorry, we can’t serve you Coke, since we’d have to sell it at $3.50 owing to cost increases. We requested a price hike and it hasn’t been granted yet, so we can’t start selling it until [the commissioner] does.

So, you went and found another store where they basically told you the same thing. The price of our products cannot drop below $4. It’s $5 in the convenience shop, and you wonder how they can make money off of that when everyone else is selling Coke for $3.50 or $4. The convenience store claims that it doesn’t mind selling the item in question so long as the customer agrees to pay the inflated asking price.

The real estate market is currently experiencing just that. Everyone in the state who wants to insure their home must now pay $5 at a convenience store. Rates have skyrocketed for one simple reason: excessive government regulation.

A request for comment was sent to Commissioner Lara’s office from Insurance Business.

Market activity in California’s real estate sector is “growing by the day.”
California should let insurers seek necessary rate hikes, Reid claimed, because companies like Allstate, State Farm, AIG, and Farmers are refusing to write any or all new homes insurance policies in the state.

He explained to Insurance Business, “We’re not going to sell the product at a loss, and until they come to understand that, there’s not a solution.”

“They’re going to have to approve rate filings where insurance companies’ costs are,” the source said. “Until that happens, we’re going to have a big problem, and it’s getting bigger by the day.”

As carriers have been pulling out, Lara has been under intense pressure. In response to calls from consumer groups for the insurance commissioner to take action against the withdrawing providers, Lara told California media outlets that he lacked the ability to do so.

As for the insurance industry’s requests for broader regulatory reform, Consumer Watchdog founder Harvey Rosenfield has brushed them off as attempts at “deregulation.”

Prop 103, which Rosenfield championed in California, mandates that insurance firms obtain the commissioner’s permission before raising rates for property and casualty coverage.

“Prop 103 mandates that [insurers] get not only all the revenue that they need to cover their projections of losses, but they are also entitled to a fair profit and reasonable expenses,” Rosenfield said in a previous interview with Insurance Business. What I said was, “That’s not good enough for them.”

Photograph: 777546@pixabay

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California’s Property Insurance Crisis: Over-Regulation

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