According to DSS, over 80 RCFEs evacuated their facilities because of the Southern California fires. Some facilities were destroyed, others damaged. The cause of the fires was not the fault of the insurance companies. Insurers are being vilified for cancelling insurance policies to California homeowners. However, the cancellations land at the feet of the legislature for passing the Fair Access to Insurance Requirements (FAIR) Plan. The plan prohibited insurance companies from increasing rates based on potential risk or climate change but instead had to use “historical data,” and all rate increases needed prior approval by the insurance commissioner.
The FAIR plan stipulated that neither the taxpayer nor the government would fund the plan, so the burden fell upon insurance companies to provide insurance to homeowners unable to find insurance because a home was located in a high fire or earthquake area. The number of homeowners in the plan was over 350,000, double the amount in recent years. Insurance companies had to share the expense if a FAIR plan homeowner filed a claim. The cost to insurers had climbed to an unsustainable price and obligation, and thus many companies pulled out of the state or cancelled policies to those in the high-risk areas. If the fund were insolvent, insurance companies would have to cover the escalating costs to rebuild.
With the recent fires, the FAIR plan is teetering on obliteration, and the state came to the insurance companies seeking money and increased participation. California’s insurance commissioner Ricardo Lara said he would allow insurance companies to base some rate increases tied to “climate change,” but only if insurers followed new rules and wrote at least 15% of their policies to people who live in areas threatened by wildfires. Lara imposed a December 2024 deadline on insurers to comply with the state’s new rules, but insurers were leery of the state’s agenda and stopped writing new policies and canceled policies to homeowners in elevated risk locations.
California’s punishment upon businesses, including insurance companies, started in 2001 when the legislature radically changed labor laws. In just the past five years, over 500 businesses departed California, “voting with their feet,” as the California Policy Center stated, or expanded outside of the state. The IE Business Daily stated, “From 1990 to 2019, 65,273 businesses left California while 45,310 businesses moved into the state, a net loss of 19,963 businesses.”
Ken Miller from Claremont McKenna College said, “Rising home values, office rents, labor costs, and too many ‘burdensome’ state and local laws are some of the reasons why it is more expensive to own and operate a business in California than maybe any state in the country.” California cities are in the top 11 as the most expensive to do business in the nation: Culver City, San Francisco, San Jose, Irwindale, Los Angeles, Inglewood, El Segundo, Long Beach, Covina, Torrance, and Palm Springs.
As of March 2024, the California Department of Finance reported the state had the nation’s highest unemployment rate, lowest job growth, lowest income growth and the highest poverty rate. Chief Executive magazine ranked California as the worst state in America to do business for the 10th year in a row.
Insurance companies were facing rising operating costs and massive regulations and choosing a sane pathway.