California legislators fall short on deal to stabilize P&C insurance market

California lawmakers fell short in a bid to reform the state's P&C insurance market last week through a legislative package.

The group of stakeholders had been working for weeks on the reforms and had hoped to get the legislation to the finish line by the Sept. 11 deadline for new legislation. A major priority included permitting insurers to charge more competitive rates for wildfire-exposed areas.

“California’s decades old regulatory system is outdated and in need of modernization to handle the increasing catastrophic losses resulting from inflation, climate change and extreme weather. California needs a more efficient regulatory approval process to ensure there are enough resources in the system to cover consumer claims," said Denni Ritter, department vice president for state government relations for the American Property Casualty Insurance Association.

The California plan also included measures that are being used in other states, such as Florida, where soaring property insurance costs are driving insurers away. They include incentives for reinsurance and shoring up the state's insurer of last resort.

“We will continue to work with the Commissioner, Administration and Legislature this fall and beyond to promote needed reforms so Californians can access the insurance they need to protect their homes, cars, and businesses,” Ritter said.

Insurers pulling out

State Farm announced earlier this year that it would stop accepting applications for all business and personal lines of P&C insurance, citing inflation, a challenging reinsurance market and “rapidly growing catastrophe exposure.” The decision did not impact personal auto insurance.

In November, Allstate paused new homeowners, condo and commercial insurance policies in California to protect current customers.

Insurance Commissioner Ricardo Lara bemoaned the unsuccessful legislative push, but said the state has other options.

"“I have always been clear, legislation is one of many options that we have been pursuing," Lara said in a statement. "We also are moving forward with a package of regulatory solutions that will streamline the Department’s rate review process, opening it equitably to public input — not just the entrenched interests that have benefited materially from the status quo.”

Florida and Louisiana, too

California’s unsettled market aligns with trends across the country in which P&C insurers are boosting rates, limiting coverage or pulling out completely from regions susceptible to wildfires and other natural disasters in the era of climate change.

Florida and Louisiana have struggled to keep insurance markets healthy following extensive damage from hurricanes. Premiums are rising in Colorado amid wildfire threats, and an Oregon effort to map wildfire risk was rejected last year because of fears it would cause premiums to skyrocket.

Scientists say climate change has made the West warmer and drier over the last three decades and will continue to make weather more extreme and wildfires more frequent and destructive. In recent years, California has experienced the largest and most destructive fires in state history.

Some California homeowners already are going without coverage, and a shortage of new policies could make it more difficult to buy a home. A state-run pool that serves as the insurer of last resort for many could face pressure as enrollments surge.

The state pool — the California Fair Access to Insurance Requirements Plan — provides basic fire insurance coverage for properties in high-risk areas when traditional insurance companies will not. Enrollments have jumped in recent years to 272,846 homes in 2022.

The Associated Press contributed to this story

Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

© Entire contents copyright 2023 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.