A local California news station posted a video of a story they ran regarding a brewing legistlative battle within the state regarding homeowners’ insurance. The story was based upon a conversation Jamie Court, President of Consumer Watchdog, overheard aboard a plane as a man across the aisle spoke with two other men on a cell phone. The man across the ailse was Michael Gunning who works for an insurance lobbyist group.
The gist of the story is that insurance lobbyists seem to be working in the background to introduce a change (dedicated bill? hidden rider buried in some existing bill? not sure…) that would allow insurance companies operating in California to charge ALL customers a surcharge to make up for wildfire losses. The legislative session ends around September 20 so only three weeks remain to get the change enacted.
The concern raised by the consumer advocate was that the insurance lobbyists are intentionally working to work this bill into the last frenzied weeks of work for the legislature to stoke a sense of panic AND limit or eliminate entirely any chance for the public to understand the proposal and provide feedback to their elected officials.
The concerns for California residents are just a microcosm of all of the issues all Americans need to ponder related to both climate change, economics and politics.
Are losses from wildfires really accumulating to the point where insurers will become insolvent if they continue selling insurance at traditional rates?
Are losses accumulating so rapidly that insurers cannot remain solvent even with rates 30-50% higher?
Are insurers merely using instability in the market due to legitimate changing risk dynamics to re-rig the game in their favor by further spreading risk to those who DON’T live in zones at risk for fire, thereby SUBSIDIZING the risk taken by those who do?
Is this risk still at a level where regulating insurers in a way that forces them to solve for this risk within a given state is economically more efficient than allowing the insurers to begin spreading the risk across multiple states? To some extent, this is already done via re-insurance but I suspect most states have existing regulations that prevent an insurer from transferring loses from other regions onto a given state’s ratepayers.
Is the risk of disruption to financial markets for the nation so great from these regional insurance risks that some new national scheme is required? If so, how would such a program equitably spread risk and make insurance and home ownership more affordable without subsidizing the choice to stay in high risk areas? At what point should “raw” market forces be allowed to prevail and encourage people to get out of areas prone to fire / flood /hurricane damage?
America is already far short of housing. Failure to systematically address this aspect of housing demand and associated costs will make the existing problem far worse. At a minimum, failure to address this problem will further spike housing costs since these insurance costs will be paid by SOMEONE whether a unit is occupant owned or landlord owned. At worst, we could find we have prioritized creation of new housing stock at premium costs only to see it wiped out in the next disaster, leaving the country with even fewer financial resources to solve a growing problem.
WTH