How to Fix California’s Collapsed Homeowners’ Insurance Market

Oakland, Calif.—California homeowners are facing an insurance crisis. Policies are being cancelled, leaving homeowners unprotected from increasingly destructive catastrophes, like wildfires. How did this crisis begin? And more importantly, how can it be solved?

The insurance regulatory framework in California has created a situation in which the insurance premiums that companies collect do not reflect the risk that they are exposed to, causing insurers to flee. For this reason, the Independent Institute is awarding its sixteenth California Golden Fleece® Award to Harvey Rosenfield, Proposition 103, the California Department of Insurance, and California Insurance Commissioners.

The California Golden® Fleece Awards are a series of in-depth reports from the Independent Institute that expose waste, fraud, and abuse in California on the state or local level.

This report examines the regulatory failures that have driven the chaotic collapse of the state’s property insurance markets and offers recommendations on the reforms necessary to create a functioning and sustainable market.

“Proposition 103 created a system that doesn’t allow fair market pricing for insurance companies,” said Kristian Fors, Independent Institute Research Fellow and Director of the California Golden® Fleece Awards. “The insurance rates permitted in California do not reflect the level of risk that insurance companies are exposed to,” he added.

Even before the wildfires which ravaged southern California in January this year, homeowners’ policies were being cancelled by insurers, fleeing the market because they were unable to price policies to reflect their own risks.

Key policy recommendations in the report include eliminating restrictions on insurance rate settings and repealing Proposition 103. Other reforms are needed in wildfire management and decreasing the upsurge of housing built in so-called wildland-urban zones: fire prone areas which exist between unoccupied land and human development.

Author Biography: Kristian Fors is a research fellow at the Independent Institute and director of the California Golden Fleece® Awards. His research focuses on public policy and economics, with an emphasis on government waste and inefficiencies in California. He earned a BA in economics from Utah State University, an MA in international relations from the Moscow State Institute of International Relations (MGIMO), and an MSc in behavioral science from the London School of Economics.

To interview Kristian Fors, contact Robert Ade, [email protected], or (510) 635-3690.

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