It is convenient to argue that the reason State Farm and other insurance companies have left California is because of climate change but this is not entirely true, or the whole reason. It is true part of the issue is California’s poor forest managem…
It is convenient to argue that the reason State Farm and other insurance companies have left California is because of climate change but this is not entirely true, or the whole reason. It is true part of the issue is California’s poor forest management, and drought conditions in general.
Did you know California is the only state that requires insurers to set premiums based on historical experience? The result is that insurers are required to base rates on prior decades when wildfires were less frequent and intense than they are now. Companies are prohibited from factoring in the increased likelihood of droughts going forward. The environmentalists in California will argue that droughts and wild fires are becoming more prevalent and increasing in frequency and intensity as time passes. Then why does the state prohibit insurance companies from planning around this assumption?
The real issue with operating in California is the state’s hostility to the insurance industry.
State Farm could not accurately price risk into its rates and raise them to cover the ballooning liabilities the company faces. Other companies like AIG and Chubb have been reducing their business dealings in California.
As if this was not bad enough, construction costs in Calfornia are surging. The cost to build a house on average excluding land is $1.35 million. The reason is the state’s burdensome building code, extensive red table, and high energy and labors costs.
California is not lashing out at insurers, claiming they are prioritizing short term financial goals instead of protecting consumers in California. This isn’t true. These companies are protecting their customers, investors, and creditors. The state should not be driving insurers out. They are reducing competition and forcing customers into state established insurers of last resort.
Works Cited:
https://www.wsj.com/articles/state-farm-homeowners-insurance-california-2a934a22?mod=hp_opin_pos_1
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