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- California Regulations Prevent Insurers From Accurately Pricing Wildfire Risk, So Now They’re Fleeing the State
California Regulations Prevent Insurers From Accurately Pricing Wildfire Risk, So Now They’re Fleeing the State
California homeowners are finding out that government-imposed market distortions cannot be maintained forever.
by Ronald Bailey Reason.com
Like a good neighbor, State Farm Insurance is warning Californians to stop living and building in high wildfire-risk zones. That is the upshot of a press release in which the insurer states that the company, as a “provider of homeowners insurance in California, will cease accepting new applications including all business and personal lines property and casualty insurance, effective May 27, 2023.” State Farm is taking this step largely because the California Department of Insurance’s system of price controls does not allow it and other insurance companies to charge premiums commensurate with the potential losses they face.
Consequently, State Farm is no longer willing to sell new homeowner insurance policies because the company calculates that it cannot cover potential losses in the face of increasing wildfire risks, fast-rising rebuilding costs, and steep increases in reinsurance rates. Higher rebuilding costs boost the values of the houses and businesses that companies currently insure.