Monday, Sept. 25, 2023 |
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Make price controls strict enough, and eventually they’ll produce shortages. California homeowners are learning that the hard way.
State Farm is the largest homeowners insurance company in California. In May, it announced that it won’t be accepting applications for new policies. That’s odd. Companies with a dominant market position don’t usually walk away. But now, State Farm looks like a trendsetter.
Farmer’s Insurance, the second-biggest player, is limiting how many new homeowners policies it issues. Allstate, ranked No. 4, has stopped selling. It’s hard to keep up with the exodus. AmGUARD Insurance, connected to Berkshire Hathaway, is out. Berkshire Hathaway had the third most market share in 2022. Liberty Mutual, No. 5 on that list, will not renew business owner policies at the end of this year.
It shouldn’t be hard to understand why this is happening. Something is preventing these companies from making money. Things are so dire that they believe it will be more profitable to walk away from the market share they’ve spent years and oodles of money developing.
That “something” isn’t hard to find. In 1988, California voters passed Proposition 103. If insurance companies request rate rates of 7 percent or more, “public interest” groups can delay or even stop the approval process.
In most circumstances, that’s an annoyance, not a deal breaker. But Bidenomics pushed inflation to 7 percent in 2021 and 6.5 percent in 2022, driving up costs. Claims have gone up, too. Progressives point to global warming, but there’s much more to it, including government inaction and interventions in the marketplace by meddling Sacramento politicians.
In the past few years, California has experienced a number of massive wildfires. In terms of property loss, the seven largest wildfires in California history have all occurred since 2020. The other occurred in 2018. The 2021 Dixie Fire destroyed more than 1,300 structures. The 2020 North Complex Fire ruined more than 2,000.
Flooding is a problem, too. Much of the small town of Pajaro was destroyed in March after a levee failed. Officials knew a nearby levee was weak. But California has spent decades neglecting aging infrastructure. Fighting global warming generates headlines, but it often distracts from the more mundane, yet essential, tasks. Those include maintaining levees and building dams and reservoirs.
This has left insurers in an untenable position. Costs are soaring, but they can’t raise rates by enough to cover them. It shouldn’t take a degree in economics to realize that many have decided their best choice is to exit the market.
California’s insurance crisis should serve as a warning to states such as Nevada. Price controls — hello, rent control — produce shortages and should be avoided.