California’s Wildfire Insurance Catastrophe

The state has refused to let insurers do proper pricing for risk. Homeowners and taxpayers will pay for the mistake

WSJ editorial. Excerpts:

"California’s politicians have fueled a five-alarm insurance-market crisis that will hurt homeowners and taxpayers across the state once the fires have died out."

"Insurers had already scrapped hundreds of thousands of policies and limited coverage in wildfire-prone areas. Democrats blame climate change, which has become an all-purpose excuse for any disaster-relief failure. But the real insurance problem is that state regulators have barred insurers from charging premiums that fully reflect risks and costs."

"had also prohibited insurers from adjusting premiums by using the standard industry practice of catastrophe modeling to predict a property’s future risk. Insurers could only assess premiums based on historical losses."

"As a result, insurers are paying out $1.09 in expenses and claims for every $1 they collect in premiums." 

"state regulators have required FAIR to cover higher-priced homes while rejecting its proposals for rate increases to account for rising risk and liabilities, just as it has for private insurers."

"To keep carriers from fleeing the market, California insurance commissioner Ricardo Lara last month said at long last that they could use catastrophe modeling and price in their reinsurance costs."

"he also imposed costly regulations that may still cause some insurers to retreat"