PD Editorial: A cascading crisis in home insurance market

California’s beleaguered homeowners insurance market just ratcheted even tighter.

State Farm, which insures more property owners in California than any other company, announced last week that it will no longer sell property and casualty policies in the Golden State. Allstate, the fourth-largest insurer, quietly halted California sales last year, according to industry publications.

Their departures leave even fewer options in a state where insurers have canceled more than a million homeowners policies since 2015.

Insurers blame wildfire claims and complain that state regulators won’t let them raise premiums enough to offset their exposure to fires and other disasters, which may become more frequent and more intense as climate change drives up average temperatures.

Property owners have a quandary of their own. Mortgage lenders require borrowers to carry insurance, but it’s increasingly difficult to find coverage at any price — even in areas that haven’t previously been classified as high risks for fire.

Homeowners who can’t find an insurance company get shunted into the FAIR Plan, the state’s high-cost, bare-bones insurer of last resort.

California’s market has been unraveling for years, and cancellations almost certainly would have accelerated even faster without a 2019 law authorizing one-year moratoriums in areas affected by wildfires.

It would be easy to lay all the blame on California lawmakers and Ricardo Lara, the state’s elected insurance commissioner. They haven’t done enough to keep homeowners insurance available and affordable.

But this isn’t an only in California crisis. Numerous states are struggling with inflating premiums and deflating availability of insurance. Only the disasters are different.

In flood-prone Louisiana, the New York Times reports the state raised rates for its last-resort plan by 63% and is offering subsidies to insurers willing to enter the market. In Texas, tens of thousands of homeowners now rely on the state-chartered backstop plan. Most big insurers long ago left Florida, where hurricanes and rising sea levels menace coastal communities.

Dysfunctional insurance markets aren’t limited to coastal states. In Kentucky, which was hammered by storms last summer, flood insurance premiums are about to quadruple. Meanwhile, in Nebraska, Kansas and Oklahoma, analysts say tornadoes are driving up premiums.

Restricting development in fire-prone areas could limit future exposure, and coastal erosion may force some people to pull up stakes and move inland. But it would be impossible to move everyone out of places at risk of storms and floods, earthquakes and fires.

There is precedent for public disaster insurance. When private insurers stopped offering flood coverage, Congress stepped in to create the National Flood Insurance Program. A broader national disaster insurance program is worth exploring in case private insurers continue to stop selling new property and casualty policies or leave markets entirely.

A public pool would ease fears of cancellation, but it wouldn’t guarantee affordability. Average flood insurance premiums more than doubled to $1,808 a year since 2021, when the Federal Emergency Management Agency adjusted its method for setting rates to better reflect actual flood dangers.

For now, as fire season starts, California homeowners can qualify for premium discounts by complying with the state’s Safer from Wildfires framework, a 10-step guide to safeguarding property. After that, they can only hope their policy gets renewed.

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