California’s long-distorted insurance market reached a level of dysfunction in 2023 that had tangible consequences for average homeowners. Following a series of costly wildfires, they struggled to find insurance, faced soaring prices and, in many cases, had no choice but to turn to the overburdened, state-created insurer of last resort, the FAIR (Fair Access to Insurance Requirements) Plan. The market is still facing challenges, but Insurance Commissioner Ricardo Lara enacted a Sustainable Insurance Strategy that has stabilized the market and averted disaster.
Lara’s public-policy actions over the last three years mostly reflected the best-practices for reviving an insurance market that’s been struggling with contracting competition. However, he is termed out and someone will have to replace him. And the choices could imperil the Sustainable Insurance Strategy. The leading primary vote-getter is former San Francisco Supervisor Jane Kim, who was endorsed by Bernie Sanders. A former director of the Working Families Party, she wants to socialize large portions of the insurance market.
Had Republican Stacey Korsgaden come in second place in the primary rather than a fairly close third, Kim would likely go on to win the general election by the roughly 60% to 40% margins that Democrats receive in statewide races when they are up against a GOP challenger. Instead, former Sen. Ben Allen, D-Santa Monica, grabbed the second spot and he has a solid chance to stop Kim in November. It’s dicey, though. Insurance companies no doubt view Kim as posing an existential threat, but those companies aren’t well liked — and big spending on Allen’s behalf could backfire.
I was able to interview the main insurance-commissioner candidates before the primary in my role as a member of the Southern California News Group Editorial Board. The main contenders came down to Kim, Allen, former Sen. Steven Bradford, D-Inglewood, and Patrick Wolff, a Bay Area entrepreneur with extensive background in the insurance industry. He was a political neophyte and grand-master chess champion. The newspaper group ultimately endorsed Wolff: “He’s not seeking higher office, has expertise in the insurance field and the right ideas for reviving the market. He’s clearly the person one would pick if the job were about qualifications, not politics.”
It’s telling that after his loss, Wolff endorsed Allen, based on Allen’s willingness to modernize the rate-review process, speed up reviews and improve community wildfire hardening. But Wolff’s main concern is what Kim would do if she wins, which is create a publicly run program that he rightly calls “a radical and risky reimagining of the entire insurance system.” He quotes the San Francisco Chronicle, which calls it a way to “effectively blow up [California’s insurance] system by establishing a state-run single-payer disaster insurance program with guaranteed coverage.”
In her pre-primary op-ed in The Orange County Register, Kim blasts insurance companies for their profits, then vows to create “a public Disaster Insurance for All program. There are no shareholders to fund. Our money stays in the state. We re-invest our dollars into home hardening, fire and flood prevention to lower risk for everyone. This is not a radical idea; it’s the only common sense solution to stabilize the market.” It sounds pretty radical to most insurance experts.
Consider how other publicly run insurance programs operate. The FAIR Plan is publicly created and — even though it’s privately funded — it has faced innumerable problems largely because it’s not based on risks and profit. The National Flood Insurance Program is run by the Federal Emergency Management Agency (FEMA), although it works in partnership with private insurers. It is routinely viewed as a basket case. It’s always at risk of insolvency as it insures properties in areas where few private insurers would offer underwriting. It also encourages people to repeatedly rebuild in areas that inevitably will get flooded again. I dealt with the program to get insurance for a home I owned in a flood-prone community and it took months to get the policy underwritten given its bureaucracy.
Rex Frazier, president of the Personal Insurance Federation of California, raises the obvious tax-related concerns about the “disaster insurance for all” plan: “Interestingly, candidate Kim has not explained why the current California FAIR Plan (CFP) fails to accomplish her goals. The CFP is 100% financially backed by the insurance industry (no taxpayer dollars). The New Zealand catastrophe fund that Kim references that is 100% guaranteed by the national government. Do Californians really want taxpayer liability over private insurer liability?”
Perhaps it’s unlikely that Kim could convince the Legislature and voters, who might need to weigh in depending on the specifics of her proposals, to upend the Proposition 103 system and replace it with this publicly owned system. But her ideas suggest that she views private insurance as a problem. That makes it likely that she would be resistant to let markets work and prices rise and fall based on risk. Critics worry that an insurance commissioner who walks back the latest reforms and pushes for a government-run alternative could spark another insurer exodus — just as California’s insurance market is beginning, however slightly, to return to normal.
Steven Greenhut is director of the Pacific Research Institute’s Free Cities Center.