Wildfires Prove California’s Insurance Regulations Out of Step

Although I’m made to understand that a combination of weather and land management policies caused the wildfires, I think it’s important to observe the role that California’s broken insurance system has played in making the damage worse than it would have been.

Since 1988, a misguided populist system established under the state’s Proposition 103 has governed California’s insurance companies. If they wish to change the rates being charged for ordinary homeowners’ insurance, California insurance companies must file reams of paperwork with the state and wait months or more for approval. This obviously discourages any sort of rate changes (both upward and downward) and, several studies have shown, actually results in higher insurance rates for most people in the state.

The same system also places dozens of restrictions on what insurance companies can take into account in setting their rates and makes it difficult to charge different rates to nearby properties even when risks are very different. This has two negative results for California. First, it subsidizes insurance rates for people who wish to live in fire-prone areas while raising them for those who live in safer places. Second, actually it tends to encourage development in those areas since they’re often the prettiest parts of the state.

If California wants to be safer, it should first turn its attention to zoning, planning, and land management policies. But, once that’s done, the state should look at its insurance system with a very critical eye.