Lara’s reforms OK, but miss real problem

California’s second-largest home insurer, Farmers Insurance, recently announced it will boost the number of home-insurance policies that it writes here this year by 2,500. In a normal insurance market, that shouldn’t even be news. In California it was a major story because it signals the first sign of relief during a crisis that has seen top insurers fleeing our wobbly market.

Farmers specifically cited an improved insurance marketplace for its decision. “This is a positive step forward for California homeowners, renters, and businesses who have faced significant challenges accessing coverage,” said Insurance Commissioner Ricardo Lara. “While more work needs to be done, this is a clear sign our reforms are working.”

“More work to be done” is an understatement. A week later, Safeco announced it will no longer write renters’ and condominium policies beginning next month. Other insurance companies remain leery of California’s market even after Lara’s new reforms.

Those new rules allow home-insurance companies to use catastrophe models for rate setting in exchange for expanding their coverage, especially in wildfire-prone areas. They also require insurers to consider homeowners’ fire-hardening measures when setting rates. Lara also has approved a series of rate hikes. These long-awaited changes are helpful, but don’t address the core problem: California’s system of insurance regulation.

Consider the absurdity of the situation. Insurance companies are in the business of writing insurance policies. Yet they don’t want to write them here. State officials blame climate change and inflation, but the real problem is rooted in Proposition 103 — the 1988 ballot measure that gave the insurance commissioner power to approve rate hikes and mandate price rollbacks.

These are price controls, which lead to shortages. If insurance companies cannot set rates to reflect their risk, they stop writing policies rather than face exposure. The results: fewer policies and over-reliance on the troubled state-created insurer of last resort (the FAIR Plan).

Lara deserves credit for bucking consumer/trial-attorney advocates for the current system, but at some point California needs to go back to the ballot box and revamp the real cause of our insurance woes.

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