California has some of the strictest insurance regulations in the country. It’s the only state where insurers are not allowed to base their rate hikes on catastrophe models — forward-looking calculations of risk — or the rising cost of reinsurance premiums, according to Zimmerman and the Department of Insurance.
Under current regulations, insurers are only allowed to use catastrophe models to calculate earthquake insurance rates. A proposed change under the Sustainable Insurance Strategy would extend this risk to wildfire risks, as well as post-earthquake fire and terrorism risks. Another draft regulation that has not yet been published would also allow insurers to include reinsurance costs in rate increases, the ministry previously announced.
The quote above is from Megan Fan Munce: “A major California home insurer could resume writing new policies. This is what it would take“, Chronicle of San FranciscoApril 24, 2024.
In case you haven’t heard, home insurance price control are causing a number of insurers not to write new homeowners insurance policies and, in some cases, to exit their operations in California. The two paragraphs above outline an important way to control prices. Insurers are not allowed to base their rates on expected risks.
Although my wife and I are lucky because State Farm announced they will renew our policy, I am not so lucky in another role. I am a limited partner who owns approximately 1% of a large apartment complex in Bakersfield. Our insurer informed the general partner that they would not renew our insurance and they could not find any insurer that would do so.
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