As Los Angeles recovers from what was, quite possibly, the worst wildfires in the city’s history, many Americans are pointing fingers over who is to blame for the catastrophe and what could have been done to prevent it.
From criticism of the L.A. mayor’s handling of the crisis and lingering questions over cuts to the city’s fire department budget to accusations of failed leadership at the highest level of California state government, few have been spared from rising public anger over the disaster. Much of this anger is justified — especially concerning chronic government mismanagement. However, that relating to property insurance is not.
Some of the fiercest anger has been directed toward insurance companies after the revelation that State Farm had chosen not to renew policies in communities like Pacific Palisades in the months leading up to the wildfires. Celebrities and entertainers have blasted these companies on social media, accusing them of being driven by “pure greed” and caring only for their bottom line. Others have promised never to do business with them again. Even California’s former insurance commissioner has called on insurance companies to step up and do more. While understandable, this anger is misplaced.
Insurance experts have been sounding the alarm that California’s property insurance market is in dire financial straits for years. Specifically, experts have warned that antiquated regulations are preventing insurance carriers from being able to adequately adjust their rates to reflect the risk associated with natural disasters, resulting in many choosing to stop writing new policies, scale back coverage, or exit the state insurance market entirely.
Until last month, a 1988 legislative measure known as Proposition 103 prevented insurers from passing the cost of reinsurance — insurance for insurance companies — onto consumers, with any proposed rate increases greater than 7 percent requiring state regulatory approval. This made California the only state that denied insurers the ability to factor in the cost of reinsurance policies and the power to reject or delay substantial increases outright.
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Nate Scherer is the Director of Finance Policy at the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow on X @ConsumerPal.