The property insurance crisis continues to pose major problems
by: Jamie Reid
The property insurance crisis continues to pose major problems. Here, I will outline these problems, illustrate them with an analogy, and propose a solution to resolve them. If no action is taken, what is currently an undesirable condition will turn catastrophic.
Problem 1 – An increase in catastrophic weather events is driving significant loss for property insurers. This has been stated by California Insurance Commissioner Ricardo Lara, and is an indisputable fact.
Problem 2 – We (insurance brokers) are hearing conflicting messages regarding property rate increases. Commissioner Lara says that insurers have not been filing rate increases (or waited too long to ask for them than he advised). But Lara’s explanation directly contradicts what we are hearing from insurers. They are telling us that if they file any rate decrease, the California Department of Insurance (DOI) will approve it relatively quickly (less than a month). But when they file rate increases, the DOI does not respond. A passive-aggressive approach in what appears to be framing up for a political agenda ahead of the elections.
Analogy – Let’s say you love to drink a nice can of Coke with your meal and you typically pay $2.50 for this Coke when you eat your favorite burrito. One day, you ask for a Coke and are told the establishment no longer sells Coke because the cost to do so has increased to $3.50. You gladly offer to pay the higher price of $3.50. The restaurant says, “We would like to sell you that Coke for $3.50, but the Coke Commissioner will not allow us to sell it at any other price than our previously approved rate of $2.50, so we have discontinued selling Coke.”
You, having a strong desire for a Coke with your burrito and being smart as you are, remember that your second favorite burrito shop sells Coke for $3.50 so you head over there. They explain that their costs to sell Coke have also increased and it now costs them $4.00 to sell coke. They also explain that the Coke Commissioner has not responded to allow them to sell Coke at the higher price so they can no longer sell Coke.
As a last-ditch effort, you remember a convenience store that sells a single can of Coke for $5.00 and you head there. Surprisingly, they still sell coke for $5.00. When questioned why they are still selling Coke, they explain that Coke is not their primary objective to sell and thus they set the price far above where they needed to, and now they are selling tons of Coke at an inflated price and making good money.
This is exactly what is happening with most property insurance companies (both homeowners insurance as well as commercial property). They can no longer sell insurance at their previously filed rates due to a combination of hyper-inflation increasing construction costs and increased activity in natural disasters. Instead of approving rate increases, Commissioner Lara & the DOI are taking a political stand in an effort to gain voter approval. This is leading insurers to discontinue their property insurance products and the industry is heading toward a disaster full of unnecessary cost increases.
Solution – In my opinion, Commissioner Lara and the DOI are over-regulating insurance. If they would approve necessary rate increases in a timely manner, competition between insurers (supply & demand) will force pricing in line with a healthy economy.
Action – sign this petition to make your voice heard about the desire for the California Insurance Commissioner to stop overregulating property insurance and approve necessary rate increases in a timely manner. We want to meet with Commissioner Lara to outline our position and work together to find a solution that is favorable for property owners (both home and commercial), insurers and the economy.
This movement is led by Jamie Reid, Chairman of C3 Insurance. If you also feel strongly about reducing property insurance regulation, contact Jamie at firstname.lastname@example.org. For media inquiries contact email@example.com or firstname.lastname@example.org.