Did you notice getting insurance, especially new home insurance policies, has become more difficult in California? Hello. I am California personal injury attorney Michael Ehline. I grew up in California, and I remember the days we slept with our doors unlocked, and ALL grown and young men opened doors for the ladies. I have seen the decline of the State starting under Jerry Brown and reaching critical mass under Gavin Newsom. This article is intended to cover part of my series, “Fleeing California.” To lay a foundation, my mother lived in Lake Arrowhead many years ago.

Many of her neighbors were existing customers of California’s high-risk “last resort” insurance options and constantly complained about bark beetles and all the dead, dried-up trees. Neither the state nor federal government did a thing. Her neighbors complained the governor wanted the forest to burn so he could blame “climate change” and raise taxes further. All their homes burned down about a year later. Then we saw all the fires in NorCal, burdening insurers to the breaking point. And, of course, the governor and state assembly/senate blamed, you guessed it, the “climate crisis” and massive tax increases and regulations followed beyond market capacity.

On queue, KCAL News reported that major auto insurers were reducing their presence in the California market, citing high costs associated with insuring drivers in the state. Auto accidents have increased, resulting in higher payouts for insurance companies. However, the insurance commissioner has contested these claims, stating that the facts do not support the insurers’ arguments. In response, as will be discussed, was Draconian legislation that directly and indirectly raised taxes on consumers and insurers.

Between 2020 and 2021, auto insurance losses surged by 25%, while premiums only saw a 4.5% increase, as the American Property Casualty Insurance Association reported. The frequency and severity of auto accidents have risen, leading to increased costs for coverage. According to Denni Ritter from the American Property Casualty Insurance Association, rental car expenses have gone up by 33%, and the cost of new vehicles has increased by 11%.

California’s Insurance Industry Faces Crisis as Companies Flee the State

Red tape and government regulation force insurance companies to abandon California, leaving working families and job creators with limited options and rising prices, say insurers. The insurance industry in California is in turmoil as insurance companies, including State Farm and GEICO, exit the state due to excessive government control and over-regulation. Construction cost increases, catastrophe exposure, and a challenging reinsurance market are cited as factors, but the true culprit is the stifling bureaucracy and lack of economic freedom.

The California Department of Insurance wields significant power, dictating companies’ policies, prices, and day-to-day operations. The state’s failure to adequately address issues like forest thinning and mandating expensive home construction additions further exacerbates the problem. Competition diminishes as these and other companies flee California in droves, increasing insurance consumers’ prices.

The impact falls disproportionately on working families and small businesses, who are neglected in this government-driven exodus. Unless California reevaluates its approach to crime, respects parental rights, and fosters a competitive and innovative insurance market, the fleeing consumer/business crisis is poised to worsen, burdening the few remaining taxpaying citizens with further financial strain. Let’s take a look at how more and more regulations and hidden taxes sparked this latest exodus.

2022 – Post-COVID, Increased Traffic Led to Higher Accident Rates

True, insurers benefited from reduced pandemic restrictions. The problem was that as traffic returned to pre-pandemic levels, more accidents, injuries, and fatalities occurred than normal. Simultaneously, calls for insurers to repay so-called “windfall profits” from the forced government lockdowns remained unanswered. That was the purpose behind many of these laws. Property and casualty insurance companies also had to deal with a backlog of rate increase filings from the crazy wildfire risks many experts blame the state on for failing to cull forests.

As pandemic restrictions ease and traffic in California nearly reaches pre-pandemic levels, accident rates have surged, increasing injuries and fatalities. Bob Passmore, an auto claims expert, highlights the decline in driver safety since the pandemic and the subsequent rise in crashes. Although deaths briefly decreased last spring, the financial impact of these incidents is not alleviated due to supply chain shortages and soaring inflation.

Harvey Rosenfeld Position

Consumer Watchdog founder Harvey Rosenfield argues that insurers should reimburse the windfall profits they gained during the pandemic. By then, a backlog of 38 rate increase filings and five new requests filed added to the regulatory challenges.

As noted, GEICO recently closed ALL its physical storefronts in California in response to the evolving landscape, limiting insurance purchases to online channels. Democrats claim the need for regulatory action and fair compensation for California motorists remains a pressing issue in light of the increased accidents and delayed rate approvals. Ultimately, 2023 saw the legislative dam explode.

New Insurance Protections for California Consumers For 2023

Eleven new state laws sponsored by Insurance Commissioner Ricardo Lara brought increased consumer protections in California.

Starting January 1, 2023, Californians and insurers were saddled with eleven new state laws that purportedly would enhance consumer protections in various areas, including:

• Climate change
• Health Access
• Reproductive care
• Fraud prevention
• Public safety.

These laws, sponsored by Insurance Commissioner Ricardo Lara, were passed during the regular legislative session and rapidly signed into law by Governor Newsom. They were purportedly intended to bring fairness and improved oversight to California’s insurance market. Most of these laws were passed to force insurers to cover risks they did not want to cover and not to pass costs on to consumers in each legislator’s constituency. However, the semantics of their names compared to what they did by implementing them sparked even insurers to flee California. In other words, these laws failed to work for the benefit of California consumers and cost thousands of jobs.

Highlighted Laws Effective January 1, 2023:

1. AB 2238: Creation of a statewide extreme heat advance warning and ranking system based on climate and health impact information. This system, developed by the California Environmental Protection Agency in collaboration with the Department of Insurance and the Integrated Climate Adaption and Resiliency program, will be the first of its kind in the nation. A tax increase to push the so-called “climate crisis.”
2. SB 852: Authorization for the establishment of Climate Resilience Districts statewide, aimed at helping communities mitigate risks and promote recovery in the face of disasters. This measure is aligned with the Department of Insurance’s climate insurance report and aims to improve insurance access for all Californians. Forced insurers to cover risks deemed too high to accept and forced insurers to charge less than the actuarial risk.
3. AB 2134: “Care Act.” Establishment of the “Reproductive Health Equity Program,” providing grants to healthcare providers offering reproductive and sexual health services free of cost to low-income individuals and those without health coverage. Requires employers, even religious employers, and insurers to provide a plan that allows for free abortions and birth control pills for poor people. The grants complement the $40 million allocated in the 2022-23 State Budget to support these vital healthcare services. Doctors and pharmacies who donate big money to state politicians and Planned Parenthood will benefit heavily from these finances.
4. AB 1823: Alignment of the definition of student blanket policies purchased by colleges and universities with the federal Affordable Care Act (ACA). This alignment ensures regulatory oversight and extends consumer protections under the ACA to student health policies sold through educational institutions, including Dreamers and refugee students. (“illegal aliens.”)
5. AB 2127: Strengthening notice requirements for Medicare-eligible older adults seeking to be added as dependents to their adult child’s individual health insurance policy or health care service plan contract. This measure builds upon the previously sponsored “Parent Healthcare Act.”
6. AB 2568: Creation of a “safe harbor” provision to clarify that providing insurance or related services to state-legal cannabis businesses does not constitute a crime under California law, even though it is illegal federally.
7. SB 972: Updates to the “Safe Sidewalk Vending Act” to bring entrepreneurial sidewalk food vendors into a more regulated and equitable food economy, thereby ending the criminalization of sidewalk vending. In other words, taxing taco stands and food trucks more.
8. SB 1040: Authorization for the Insurance Commissioner to order restitution from individuals selling insurance without the necessary license, including those involved in illegal sales of “extended vehicle warranties” through robocalls and misappropriation of premiums.
9. SB 1242: Strengthening anti-insurance fraud efforts by clarifying agent-broker anti-fraud education requirements and enhancing the process for reporting alleged fraud to the Department of Insurance, among other consumer protection measures.
10. AB 2205: Requires health insurers and health plans offering coverage through Covered California to annually report the total amount of abortion funds to the Department of Insurance and the Department of Managed Health Care. This law aims to promote transparency and disclosure regarding separate abortion premium payments collected from policyholders and distributed as claims.
11. AB 2043: Mandate for all bail fugitive recovery agents, commonly known as “bounty hunters,” to obtain a license from the Department of Insurance. The law ensures that education, training, and background checks are completed for those collecting bounties under federal law.

So these are just some of the new rules and regulations. In California, some insurers have not received approval for rate increases from the insurance commissioner for over three years. This situation has led to insurers paying out more in claims than they collect in premiums, which is considered unsustainable by industry experts.

Insurance companies such as State Farm, Allstate, Farmers, and Progressive have sought premium increases ranging from nearly 7% to over 19% through the California Department of Insurance. These changes have also impacted the availability of auto policies, making it more challenging for agents to secure coverage for their clients.

As a response to the market conditions, GEICO has closed all of its offices in California, and Progressive has stopped advertising in the state. State Farm now requires individuals to visit an agent’s office for quotes instead of offering phone inquiries. This reduction in insurance options may lead to higher premiums for policyholders due to decreased competition.

While insurance companies focus on raising rates, the Insurance Commissioner’s office is dedicated to protecting drivers and ensuring they receive the best value for their premiums. During the height of the COVID-19 stay-at-home order, the commissioner’s efforts purportedly reduced premiums totaling $2.4 billion, even though the industry still allegedly generated $42 billion in excess premiums.

“Take All Market” Law Forces Out Insurers like State Farm?

Insurance companies cannot refuse coverage to Californians due to the state’s “take all market” policy. However, agents may need to turn to smaller, lesser-known carriers when clients require insurance promptly. The departure of State Farm and Allstate from the California market is expected to have implications for homeowners’ as well as property and casualty insurance, potentially leading to fewer options and higher premiums from State Farm and others.

It remains to be seen if State Farm’s decision to pause new applications is temporary or permanent or if the entire insurance industry will follow suit. Carriers have expressed frustration with strict limitations on rate increases, arguing that they cannot price their insurance policies adequately in light of rapidly growing catastrophe exposure. Doing an insurance coverage business in California may not be possible. Wildfires have also contributed to insurance companies scaling back coverage in fire-prone areas, making it more challenging for homeowners to find suitable policies. Despite the company’s financial strength, an insurance company does not exist to subsidize poor governance by politicians. In the meantime, new home buyers are facing higher premiums for homeowners insurance, if they can find it at all. It appears the political goals resulted in the opposite effect by not protecting consumers at all.

Commercial Insurance Policies Also Affected?

Yes, on Friday, May 26th, State Farm General Insurance Company stated it will temporarily stop writing new homeowners’ and enumerated commercial insurance policies in California.

Other Issues Affecting Insurance Consumer Confidence?

California Businesses Surprised by Their Role in State’s $20 Billion Federal Loan for Unemployment Fund

California businesses unknowingly found themselves as partners in the state’s loan repayment as the government halted payments on the borrowed $20 billion from the federal government. This was purportedly used to address the pandemic-induced unemployment fund shortfall. The revelation of California businesses acting as cosigners on the state’s substantial loan from the federal government has come as an unwelcome surprise. Imagine being a silent partner with the government and never even being informed of the insurance rates or your role to manage risk without even receiving coverage options!

As the COVID-19 pandemic created a significant deficit in California’s unemployment fund, the state resorted to borrowing nearly $20 billion to bridge the gap. However, the burden of repayment has now fallen upon the state’s businesses, who were unaware of their involvement in this loan. Recently, the state made the decision to cease payments on the borrowed funds, shedding light on the unpleasant reality. The unexpected role of California businesses in loan repayment adds another layer of complexity to the economic challenges brought about by the pandemic and high-risk decisions made by elected officials.

Other Issues Affecting Insurance Company Confidence?

It’s not just insurers leaving. Besides being unable to purchase affordable renewals or new policies, Walmart, Target, and other retailers have announced they are closing stores in high-crime areas like San Francisco. Insurers argue that these historic increases are due to historic misfeasance, non-feasance, and malfeasance by lawmakers.

Another example includes so-called “Soros” prosecutors and “far left” politicians’ general hatred of law enforcement and criminal laws. Criminals are set free with no bail, and the penalty for theft under $900 is no longer a felony. The result was obvious, massive theft and destruction of retail stores. While politicians are arguing for discounts, millions in property damage from each looting must be covered. After decades of happiness in California, political decisions have led directly to ruin in recent years, here and in other parts of the country like New York and Chicago.

More people and businesses are leaving than coming, so at some point, an insurer won’t have a large enough risk pool to insure for natural disasters or loss hazards. 40% more Californians (four in ten!) are considering leaving the state. Many voters are starting to realize there is no chance for a conservative or fiscally responsible government, and billions more will be lost in the state and local community as a result. State-run insurance options are generally undesirable as well.

Conclusion – Auto, Property and Casualty Insurance Will Cost More

We just discussed why property insurers and others are leaving California. With construction costs outpacing inflation, personal lines property insurers were already struggling to pay claims. Arguing they made a lot of profit and that they are bad is only hastening their departure from the California market. If California’s politicians would adopt personal accountability and an aggressive policy of law enforcement and forestry management (wildfire risk is at an all-time high), insurers may return. The bottom line is California’s single-party state system of overregulation can only be effective under a totalitarian nationwide system.

Until such time, businesses and California homeowners will continue to flee California to business and family-friendly states. States like Colorado are also facing these same problems as they turn blue. Are you uninsurable? Are you trying to reevaluate this pull-out announcement, or is your insurer canceling your policy? Do you disagree with Allstate or State Farm’s decision? We want to hear about it. Call us at (213) 596-9642.

Citation:

• Wall Street Journal.