California’s insurance regulator has accused two major insurers of suspending home insurance in the state because of the effects of climate change, but insurance experts have blamed high construction costs. and more likely due to stringent regulations that force insurers to keep premium rates low. .

Both Allstate and State Farm announced their decision to leave within the last month. The reasons for leaving are the state’s wildfire compensation costs, reinsurance premiums and high inflation. in the meantime,California Department of Insurance and Minor Media outlet, Companies cite climate change as the main reason for exiting, but experts say the bigger issue lies in: rule And it costs.

“The problem is that when inflation is high and there are additional costs, such as increased wildfire risk, insurers cannot get the interest rates they need for a profitable business,” said a senior vice-president of the insurance company. President Andrew Siffert said. A global insurance broker, he donated BMS Group to the Daily Caller News Foundation.

“While many additional costs have increased overall, laws and regulations have been written to limit significant premium increases. At the same time, it creates problems, as you can see with the withdrawal of ,” Siffert said.

California rule Insurers are required to obtain state insurance agency approval before setting property and casualty rates, which puts pressure on insurers to keep rates low, effectively enforcing caps on premium rates. become.

Mark Sectonan, vice president for state government regulation at the American Property and Casualty Insurance Association, said California requires the models used by insurers to be made public, so these regulations ensure that accurate rates are based on computer models. He said that it has become very difficult to set Data-modeling firms often want to keep their models private, so insurers end up using models from the last 20 years to set rates, Sectnan said. E&E news.

“It’s a bit like driving a car with the rearview mirror when the windshield is right in front of you,” Sectnan said.

Insurers use outdated models and have incomplete data on the current wildfire threat in California. This means that risk cannot be properly factored into premiums.

Siffert and his colleagues believe that the two insurers were frightened not only by the wildfires, but also by declining profits as a result of high inflation and inflexible regulation. “This is a multifaceted issue,” Siffert explained.

Both State Farm and Allstate have released statements about their decision to leave California, declaring that new home insurance policies in the state are nearly unprofitable. (Related: ‘You’ll be mad too’: LA wasting millions on housing vouchers as homeless death rate soars

“State Farm General Insurance Company made this decision because of historical increases in construction costs that have outpaced inflation, rapidly increasing catastrophe risk, and a difficult reinsurance market,” the company said. rice field. Said.

Allstate gave a similar statement to CBS: “The cost of insuring new home customers in California is much higher than insurance premiums due to wildfires, rising home repair costs, and high reinsurance premiums.”

Experts also believe that California’s high construction costs are the real reason insurance companies have pulled out. highest In any state, it will rise further due to higher inflation rates across the country.

And home insurance rates “have been artificially low for decades,” said Mark Friedlander, spokesman for the Insurance Information Institute. “This means that insurers are trading there assuming this very high risk and they continue to lose money,” Friedlander said. Axios.

Finally, the story that underscores it begins to point to the real problem of interest rate adjustments. But he seems to continue to point to climate change when the real problem is the effects of inflation across the state.
Wildfire risk is manageable https://t.co/uX3wIJ6egl

— Andrew Siffert (@AndrewSiffert) June 7, 2023

But California insurance regulators blame climate change for the insurer flight.

“The factors driving State Farm’s decision are beyond our control, including climate change challenges, rising reinsurance costs affecting the insurance industry as a whole, and global inflation,” the paper said. ing. statement From the California Department of Insurance. “Secretary Lara continues to actively encourage insurers to open more businesses in California so that consumers can take advantage of coverage options that remain available in the face of continued climate change… We are working with the governor and legislature to step up wildfire mitigation efforts and are investing $2.7 billion.” ”

Almost 85% According to the National Park Service, one wildfire in the United States is caused by humans. At least 1 in 10 Californians live in an area affected by wildfires in the last decade, and California is among the top 3 states for most recent fire-affected relocations. is in study Found from Bloomberg.

Siffert believes that insurers and California’s insurance regulators both have the tools they need to address the issue and protect consumers, despite the ongoing disruptions caused by the wildfires. ing.

“Over the last few years, especially when it comes to wildfire risk, ‘a dozen or so’ analytics firms have developed meaningful solutions to help insurers manage these risks,” Siffert said. . “These tools didn’t exist for him 10 years ago. Wildfire exposure management is not that difficult.”

As revealed by Bloomberg, insurers are reluctant to cancel or renew policies in areas of high wildfire risk, given regulations that force discounts and low interest rates amid already high inflation. choose to decline. data Insurance surrenders surged from 165,000 in 2018 to 235,000 in 2019 and 241,000 in 2021.

Allstate and State Farm have not yet announced when they will reopen for business in California.

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