The sinking of California’s insurance industry

September 4, 2023

OPINION by STACY KORSGADEN

What does the captain of the Titanic and California’s Insurance Commissioner have in common? When California’s insurance industry steamed toward a looming “iceberg,” Ricardo Lara, California’s “Captain of insurance” was asleep. In May we struck the iceberg.

State Farm declared they would stop writing new home policies in California: “State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”

Reinsurance is the insurance insurers purchase from larger companies to cover potential losses. It’s insurance for insurance companies and it’s becoming prohibitively expensive and less available.

How did Captain Lara respond? In a Consumer Alert issued by his department, “climate change challenges” were blamed. Have you noticed when anything goes wrong, climate change is the first to be blamed? No one talks about disastrous climate change policies, like restrictions on clearing dry brush and dead trees.

I am for gorgeous forests like anyone else. But we’re not helping our forests when we let them erupt into fire.

A second point said current customers would not lose their coverage and there are about 115 other insurance companies still writing new residential policies. Yes, thankfully, many will keep their policies, for now. And  there are still other insurers. But for how long? Already more are reducing services or leaving the state.

The alert also cited the state’s FAIR Plan as a “last resort.” Do we really want government to be the only source for our coverage? The FAIR plan is already expensive and if it becomes the only insurance available, prices will skyrocket. Customers will deal with bureaucrats rather than local agents.

When I became an agent, the first thing I learned was insurance is a business. When my company insured a home, the risk was assessed, a contract was signed, the premium was collected, and a policy was born. My job was complete.

But back at corporate, there were smart people called “actuaries.” They performed statistical calculations to determine the risk of loss and determine a premium that when pooled with other premiums covered any potential losses, paid expenses, and yielded profits.

Everyone counted on the actuaries to be correct because we had to keep our promises. Company executives were motivated to keep premiums down because of competition.

Since those days, the calculations for fire and other risks have exploded. And more trouble is coming down the pike. Ballot initiatives have wreaked havoc. Before, actuaries never had to adjust for a government that wouldn’t lock up thieves and criminals.

So what happens when more insurance companies stop writing coverage or simply leave the state? The buyer for the new home can’t purchase if he can’t insure. The realtor loses his commission. The new car the realtor planned to purchase goes unsold. The car sales rep can’t purchase the new blinds she wanted. The local contractor is idle. His little girl goes to school without a new coat. The effects rips through our economy.

With an all-hands-on-deck approach, this can be remedied. Wise management of our forests would renew our environment and reduce risks. A shift from hostility to civility with respect to regulations, specifically addressing Proposition 103 which handcuffed insurance companies, would also help to right our ship.

The Titanic’s Captain Edward Smith had warnings. He went to sleep in his quarters. Captain Ricardo Lara had warnings. He did nothing. The iceberg hit. He does nothing.

Why isn’t Captain Lara communicating with the public? Why isn’t he pounding our legislators to act? Why isn’t he relentlessly pestering our governor?

He is sleeping or worse, ignoring reality, as the insurance industry is sinking. What will it take to rouse him?

The author, Stacy A. Korsgaden, began her business with Farmers Insurance in 1989. She was a President’s Council agent for 14 years of her career, which means she was one of the top 150 agents in the country out of 15,000 agents at the time. She is still a licensed insurance agent, but her focus today is as a financial advisor. Stacy lives in Grover Beach in San Luis Obispo county and is active in her community.