At a recent California gubernatorial debate, former Attorney General Xavier Becerra was asked which specific cost, gas, groceries, utilities, or childcare, would he lower first as governor. He answered: “…one of the things that I will do immediately is I will freeze utility rates, and I will freeze home insurance policy premiums.”
“It is time for us to get behind the curtain and understand why these industries are charging Californians so much and, in some cases, dropping Californians from their insurance policy without explanation, charging twice as much,” Becerra added, implying he would cap utility rates as well.
These might sound like good ideas, but price controls do not make costs disappear. As H.L. Mencken famously noted, “for every complex problem there is an answer that is clear, simple, and wrong.” A price cap prevents suppliers from covering their costs. The predictable result is not lasting affordability, it is shortage, because businesses and insurers that cannot recover what it costs to operate respond by cutting back, deferring investment, or leaving the market.
California is already seeing these consequences in the homeowners’ insurance market. Unable to charge enough to cover the risks they are taking on, major carriers have pulled back from high-risk wildfire areas, or from the state entirely, pushing many households onto the FAIR Plan. While the FAIR Plan was designed as the insurer of last resort, it has now become the primary insurer in many communities. A formal premium freeze will worsen these consequences. The more government regulations push private insurers out, the more financial risk sits on the state’s books and ultimately on the shoulders of taxpayers.
Becerra’s ideas are not new. Politicians across the country have all too often turned to price controls as a one-size-fits-all solution for a wide range of problems. The results are never pretty.
Take rent control. Theoretically, rent control protects tenants from rising costs. In practice, cities like New York and San Francisco that have implemented rent control schemes are now suffering from housing shortages and an old and decrepit housing stock as landlords lack the incentive or ability to invest in existing units or expand supply. Ironically, the rents for non-controlled units skyrocket as a result creating an unfair and bifurcated market where people lucky enough to get a rent-controlled apartment pay below market rates while everyone else faces excessively costly housing. Politicians love to say they are capping costs and voters love to hear it, but everyone is worse off in the long run.
Becerra frames high utility bills as evidence that something is wrong with the energy industry. It is not an industry problem; it is a policy failure. California’s electricity prices are among the highest in the United States because utility companies must operate under an oppressive number of climate mandates, wildfire liability mandates, and grid requirements that increase costs, which must be recovered. Environmental groups spent years pushing to close the state’s last nuclear plant, which would have eliminated an affordable, low-carbon energy source, though the state has since extended its operations through 2045. Ratepayers are already bearing billions in wildfire mitigation costs through their bills, yet the pace of infrastructure hardening has been slow and the reliability gaps remain significant, meaning Californians are paying more while the underlying problems persist.
Freezing rates on top of that structure would not reduce those underlying costs. It would prevent utility companies from recovering them, increasing the risk of deferred maintenance, underinvestment in infrastructure, and power shortages during peak summer months, particularly in inland regions where demand is highest.
The insurance market faces a related problem. Insurers have been leaving California not because they lack oversight, but because the regulatory environment, especially the prior approval system under Proposition 103, has made it hard to price risk accurately. Limits on catastrophe modeling and on passing reinsurance costs through to policyholders meant insurers underpriced wildfire risk for years. When losses and reinsurance costs rose, continuing to do business under those constraints stopped making sense for many carriers. Recent regulatory changes have alleviated some of those burdens, and a handful of insurers have committed to staying and growing in California as a result, but the market still needs time to stabilize and catch up. A premium freeze would be a step backward at exactly the wrong moment.
A better approach begins by clearing out the policies that drive costs up and choke off supply. For utilities, that means revisiting the mandates and charges embedded in bills so rates reflect the real cost of producing and delivering power rather than masking costs across the board. For insurance, it means modernizing rate approval so companies can use current risk models, fully account for reinsurance, and compete to offer coverage instead of being regulated into retreat.
Becerra says a freeze would help Californians “get behind the curtain” on what insurers and utilities are charging. The curtain is already open, and what it reveals is not corporate greed, but decades of regulatory accumulation that have made both sectors more expensive and less reliable. If California wants affordable energy and a stable insurance market, the answer is fewer layers of government control, not another one.
Anthony Velasquez, MBA, is Pacific Research Institute’s Communications Specialist.