Picking Up Their Marbles

2018 rubble of the city once known as Paradise.The old
advice to stand under a doorway during an earthquake
seems to have some basis in fact. (Chron photo)

Insurance companies are walking away from California's home and auto business, and the Chronicle editorial board--stop the presses!--sympathizes with the companies: [bold added]

Seven of the state’s top 12 insurers have paused or restricted new business since 2022, and consumer options seem to shrink every day. The latest examples: Farmers Direct Property and Casualty Insurance Co. recently announced plans to end coverage in California and shift most policyholders to its parent company, Farmers — which has itself already limited coverage in the state. Last month, four small insurers said they would stop renewing California policies in 2024...

California is among the states with the nation’s highest cost of living but comparatively low insurance rates. This is partly due to Proposition 103, which established a robust regulatory process that, among other things, requires the insurance commissioner to review and approve any rate changes.

Prop. 103 had the admirable intent of protecting consumers and increasing transparency. But in practice, it has discouraged insurers from raising rates above a 7% threshold that triggers a more extensive and often costly review process. In 2022, it took the California Insurance Department an average of 349 days to approve rate filings, according to an S&P Global Market Intelligence analysis.

This has hindered California’s insurance market from nimbly adjusting rates to match conditions on the ground...

It’s one thing to be wary of “unchecked corporate interests,” as the congressional delegation put it. It’s another to deny that a business needs to make money in order to stay afloat. Over the past 10 years, insurance companies’ direct profit on insurance transactions in California was -6.1%, compared to 4.2% nationwide.

Economics teaches that, if prices are held below the level at which demand meets supply, shortages of the product or service will result. And so it is that California has a shortage of policies and the companies that write them.

(Note that I am not advocating a total elimination of government oversight. Without regulation a business could collect premiums and flee without having to make good on claims.)