BY MICHAEL SARAGOSA. Placerville, CA (Dec 17 2023) – When you’re the mayor of a small town, your neighbors aren’t shy about telling you what’s troubling them. When something is shaking their sense of well-being, they let you know.
California’s insurance crisis has been top of mind for Placerville residents. I hear about it nearly every day. Retired homeowners’ security is at risk because they can’t purchase insurance. The dreams of home home ownership has been dashed for young couples because they can’t insure a home. Single parents who got dropped from their auto insurance policies now struggle to find new auto coverage. Small business owners can’t get a loan because their shops are uninsurable.
My historic home — which sits off a state highway and near two fire hydrants and a fire station — lost its insurance coverage. It’s the same story for many of my fellow residents.
We’ve heard promises from state officials that they’re working to make things better, but the insurance crisis keeps getting worse. Meanwhile, millions of Californians are losing access to the coverage they need.
Just this month, four more insurance companies announced they are pulling out of the California market. Since 2022, the California insurance crisis has forced seven of the top 12 insurance companies to restrict access to new policies or exit out of the California market entirely.
The consequences are being felt and fretted over at kitchen tables across the state — keeping folks up at night, worried that their most valuable assets could go up in flames, leaving them without a roof over their heads and no ability to build back.
It’s time to fix this crisis.
California’s outdated insurance framework, a relic from the ’80s, is no longer equipped to handle the realities of today: heightened risks of extreme weather and catastrophic wildfires, record inflation and soaring costs of construction materials and the rapid growth of home density in our neighborhoods, just to name a few.
Our 35-year-old rate-review process is cumbersome and too slow. It doesn’t allow insurers to use predictive risk models to calculate risks of catastrophic wildfires. It forbids insurers from accounting for the costs of the re-insurance — the coverage insurers buy to protect consumers when disasters strike — in their ratemaking.
It’s a broken system that has led to the harsh economic reality that has forced insurers to pull back or pull out of the market. Reports from the National Association of Insurance Commissioners show that between 2012 and 2022, California insurers paid out $1.13 in claims for every $1 they received in premiums.
This is not healthy or sustainable.
California’s elected leaders have acknowledged the urgency of this crisis: Gov. Gavin Newsom, Insurance Commissioner Ricardo Lara and legislative leaders have all expressed a need for immediate action. In September, Newsom issued an executive order requesting Lara to consider prompt regulatory action. Lara has stated that “the current system is not working for all Californians, and we must change course.”
Now, Placerville families are demanding those words are turned into action. Comprehensive reforms must quickly be taken before millions more Californians lose access to the coverage they need.
Enrollment in the California FAIR plan, the state’s insurer of last resort, has increased tenfold and its stability as a safety net has been weakened to the point of a looming collapse. As enrollment in that plan swells, so does the pressure on the private insurance market – who would be required to make up the difference should catastrophic fires wipe out all of the FAIR plan’s reserves.
The only way out of this crisis is to fix California’s broken regulatory process and restore a healthy, competitive insurance market.
The fact is that this crisis is being felt intensely by consumers across California. As a small-town mayor, I hear it from my neighbors every day. The sooner this crisis is fixed, the sooner they will be able to sleep at night.
Michael Saragosa is the mayor of Placerville. He served as undersecretary of State and Consumer Services and executive director of the Employment Training Panel for Gov. Arnold Schwarzenegger.
