Regulation often has unintended consequences, and when it becomes so burdensome that insurers cannot support communities, everyone loses.
Californians are in the midst of an environmental crisis as the frequency and intensity of wildfires worsen. This year alone has produced an unseasonable January wildfire in Big Sur and a geographically uncommon fire in Laguna Niguel. Though these are outlier incidents, they are increasingly commonplace, leaving many residents of the Golden State scrambling to find homeowners insurance. A recent report predicts that wildfire risk in California will continue to grow over the next 30 years from a deadly combination of higher temperatures and lower-than-normal rainfall. This leaves homeowners in moderate-to-low-risk communities concerned with protecting life and property for an issue they likely assumed would never affect them. Couple this with a struggling insurance market, and a crisis may be on the horizon. Officials in California have enacted numerous laws and regulations to provide coverage options for riskier properties and maintain relative affordability, including the implementation of Proposition 103 in 1988 and the creation of the FAIR Plan in 1968. Proposition 103 requires insurers to seek “prior approval” for rate changes from California’s Department of Insurance (DOI). The FAIR Plan offers residents a temporary, last resort for insurance, often at higher prices and with less robust coverage. If California would like to see a better-functioning insurance market, it should be careful when implementing additional regulations, which have led to insurers fleeing the state. This year alone has seen the departure of American Insurance Group from California and a significant reduction in insurance offerings from Chubb. These are two of the largest insurers in the nation and both cited burdensome regulation in their decisions. Compounding the problem, California DOI Commissioner Ricardo Lara proposed additional regulations on insurance companies in February, forcing them to make wildfire risk assessment models and tools public—an intellectual property issue.
