Insurance crisis moves from
hinterlands to big cities

By John Seiler | May 3, 2024

The home-insurance crisis hitting California and other states is now thwarting cities’ efforts to house the homeless. All mortgages require insurance up front. No insurance, no homes for the homeless, or anybody. That directly will affect the Proposition 1 bond voters passed March 5, which will spend $6.4 billion on mental health care and, according to the title voters read on their ballots, “provides housing for the homeless.”

“In California these days, it has become increasingly difficult to obtain an insurance policy for a new home,” warned Debbie Arakel, executive director of Habitat for Humanity California on March 1. “Worse yet, it’s becoming even less likely that existing policies will be renewed. Without insurance, we can’t sell our homes to families who need them.”

The problem is spreading. “Developers of apartment buildings across the U.S. are raising alarms as property insurance rates continue to rise, a trend that threatens to seal off the pipeline for much-needed housing construction – especially new apartments with affordable units,” Bloomberg reported in September.

The crisis started in rural areas, which are still facing deep problems. In Texas, reported Newsweek March 5 after the recent wildfires, “Rural Texans are more than twice as likely to go without coverage than urban residents, partially because home insurance premiums have skyrocketed in the state as the risk of extreme weather events has grown more severe with climate change.”

The crisis is an “existential threat” to building housing for the homeless, Matthew Lewis told me; he’s the director of communications at California YIMBY, which stands for Yes in My Back Yard, a pro-housing group. A big factor is California’s own risk of wildfires, itself partly caused by poor management. “The problem was we started to intervene in those natural occurrences in some very fundamental ways,” he said. “A lot of these plants evolved to burn. But rather than allowing fire to burn, we now consider it something that has to be stopped and that interferes with the natural process.”

Watch this Free Cities Center video featuring California YIMBY’s Matthew Lewis.

Read this Free Cities Center Director Steven Greenhut’s column about the insurance crisis.

Forests are beautiful, so people naturally like to build in them, which puts their homes and lives at risk. Now many homeowners in those areas no longer can find insurance. “The reason this is so bad for affordable housing developers and people who want to build homeless shelters in low risk areas is the insurers themselves don’t get to pick the geographic focus of where they’re writing policy. They have to serve the whole market,” Lewis added.

Insurance and reinsurance markets seek the largest investment pool possible. According to Investopedia, “Reinsurance reduces the net liability on individual risks and catastrophe protection from large or multiple losses.” Essentially, reinsurance is the insurance that insurance companies buy, which lowers their capital risk and allows them to write more policies covering bigger areas.

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I asked what would happen if there’s no more insurance. Lewis replied, “Would you believe me if I told you nobody’s figured this out?” It’s a national problem, but it’s particularly bad in California because of our insurance regulations that restrict the ability of insurers to charge rates based on actual risk. Currently homeowners are becoming more reliant on the FAIR Plan (Fair Access to Insurance Requirements), the state-created, industry funded insurer of last resort. Because of the extra burdens, some observers fear the California plan could become insolvent.

State leaders say climate change is worsening the floods and wildfires. I’ll put aside the controversy over manmade climate change and point to an article I wrote last year in the Epoch Times, “California ‘Carbon Neutrality’ Won’t Reduce Global Temperatures.” I cited how California greenhouse gas emissions are just 1% of the world total. And Statistia reported, “As of 2022, China was by far the world’s largest coal consumer, with nearly 55 percent of the total consumption.” That isn’t going to change.

What more practical approaches can the state take to fix the insurance market? There are other ways to mitigate wildfire risk. The Property and Environment Research Center in Bozeman, Mont., long has advocated controlled burns and mechanical thinning. But it lamented “expanding the use of these tools on both public and private lands is often hamstrung by overlapping regulations, litigation and inadequate funding. By reducing existing regulatory hurdles and finding more creative funding approaches, we can fix America’s forests.”

Finally, a big help in California would be to repeal – or at least reform – Proposition 103 from 1988, which cut automobile and other property/casualty insurance rates by 20% and empowered the state insurance commissioner to approve or rollback future rates. That was a year after I joined the Orange County Register Editorial Board, which warned on Oct. 3 Prop. 103 would provide “the kind of service you get at the Department of Motor Vehicles or the Post Office.”

And we predicted, “Some insurance companies have threatened to stop doing business in California if Prop. 103 passes. It’s difficult to know how serious they are, but this measure would almost guarantee numerous bankruptcies… . If we don’t defeat it, we’re in for years of pain and suffering.” That was 36 years ago – and now California property insurers are fleeing in droves.

The current commissioner, Ricardo Lara, was re-elected in 2022 and has done little to address the crisis. The California Department of Insurance moves at a snail’s space to review rate filings, which is a key reason State Farm and some other insurers have stopped writing new policies and are non-renewing thousands of others. The Prop. 103 system of price controls reduces competition and has made the state more dependent on a smaller number of insurers. The state could expedite rate changes within the current framework and entice new companies to enter the market.

The test now is seeing if California’s endemic homeless crisis is severe enough to restore market mechanisms to home-insurance pricing, while reducing the regulations that hamstring sensible wildfire control. Otherwise, we’ll just see more bonds and more tax increases chasing more low-cost housing programs that cost too much to build – as the homeless continue to pile up in the streets.


John Seiler is on the Southern California News Group’s Editorial Board.

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