The short answer is the California insurance markets are in a catastrophic downward spiral caused by the incompetent and ineffectual actions of the California Insurance Commissioner, Ricardo Lara. These actions are being compounded by record breaking losses due to uncontrolled inflation, wildfires and insurance carriers taking action to protect what they have and ride out the storm. Let me break this disaster down for you.
Insurance carriers make money several ways. The first and most important is the underwriting profit or loss. This is the difference between money taken in in the form of premiums and the amounts paid out to settle losses and claims related expenses. Most insurance companies claims expenses average 90%-95% of Gross Written Premium. The remaining premium not used for paying claims is used to maintain claims paying reserves, pay employees, advertise, acquire and maintain real estate. Carriers are obligated to maintain sufficient claims paying reserves or reinsure the total value of the risks they insure.
In 2020 the United States Federal Reserve printed and spent $4,226,000,000 (that’s $4.226 trillion) more money than it took in from taxes. In 2021, the debt grew by $1,933,000,000. In 2022, the debt was further increased by $2,500,000,000. The first 11 months of 2023 has seen the debt rise by $2,775,000,000 to the current $33,703,000,000 (as of 11/01/2023) all of this deficit spending has caused a cumulative total of $20.4% (2019-2023) inflation which has increased the price of every good and service purchased or sold in US Dollars. This includes the cost of settling claims.
California has simultaneously seen a rise in wildfires:
With insurance companies absorbing the brunt of the losses and paying the claims with dwindling reserves. This has largely been an example of the results of mis-management of forests (old dead trees not being cleared) and utility companies' aging infrastructure sparking many of the largest fires. Politicians have used the “wildfires are the results of Climate Change” argument to push aggressive energy agendas but this is really not the case.
Back to insurance companies… Remember how insurance companies operate between 5%-10% of Gross Written Premium to pay employees, advertise and maintain claims paying reserves? 20% inflation has crippled insurance companies by increasing costs to settle claims and draining the reserves. The carriers are literally bleeding money. Because they are obligated to pay claims for the risks they keep on the books without the premium to cover the homes and cars they insure.
Each carrier is required to submit RATE FILINGS to the department of insurance if they wish to adjust their premiums. Commissioner Lara has been rejecting the needed rate filings in an effort to position himself as being “On Your Side” which has left carriers to pay claims in inflated 2023 dollars with premiums based on years old rate filings. This in turn has pushed carriers to severely restrict or completely close new business and for the worst risks non-renewing existing policies. The 1988 law PROPOSITION 103 is the mechanism that changed the insurance commissioner from an appointed position to an elected position; politics and the hope for re-election is why Ricardo Lara who is clearly incompetent is doing what he is doing.
The bottom line is: the California Insurance Markets are getting destroyed by politics, inflation, incompetent management of forests and utility infrastructure and the companies who offer coverage in the state are doing their best to protect themselves from the results.
