California Faces Policy Desert as Insurance Companies Halt New Coverage: Expert

“Believe it or not, California has some of the lowest rates in the United States out of any state, because of ... rate suppression,” said Chris Hebard, president of Hebard Insurance Solutions, a Northern California-based agency that offers home, auto, farm, and other net worth insurance for both personal and business use, on a recent episode of EpochTV’s “California Insider.”

While it sounds like good news for homeowners in the market for fire, property damage, and flood coverage, such a phenomenon can be a kiss of death to the state’s economy, she said.

It started in 1988 with California’s insurance rate control law, Proposition 103, requiring insurance rates to receive approval from the state before implementation. Under the law, rates are not able to naturally increase due to inflation and other issues.

According to Ms. Hebard, this has led to many insurance companies going out of business and leaving the state because they can no longer afford to pay claims on the policies.

“We all have a false sense of how much our insurance should cost. But it’s an illusion,” she said. “We have insurance companies that can no longer do business. ... That gives us an availability crisis.”

Recently, two major players in the insurance industry have withdrawn from California’s home insurance market—despite it being the most populous state in the U.S.—due to the escalating threat of wildfires and rising construction costs.

A pedestrian walks by an Allstate Insurance office in San Francisco on June 9, 2023. Allstate Insurance is following the lead of State Farm Insurance and discontinuing homeowners insurance for California residents. Justin Sullivan/Getty Images

State Farm announced in May that it would halt writing new property insurance policies for both business and personal use citing inflationary pressures.

Earlier in November, Allstate made a similar decision.

And several other insurers are also scaling down their offerings to property owners, according to Ms. Hebard.

Additionally, Proposition 103 made the California Insurance Commissioner an elected position, when previously it was governor-appointed.

Ms. Hebard said that such a change risks unprofessionalism in the industry, and it has and will hurt the economy.

“Whenever you start electing people, they become politicians instead of technicians,” she said. “You run more by what the masses want you to do than what might be exactly right for the economy and the bottom line.”

She added that officials are more inclined to keep the rates low so they remain “politically viable” by keeping voters happy.

“That’s what’s made it a political problem instead of a business problem,” she said.

Residents try to see if their house on the other side of the flames might burn during La Tuna Fire near Burbank, Calif., on Sept. 2, 2017. Officials believe the fire, which is at 5,000 acres and growing, is the largest fire ever in L.A. David McNew/Getty Images

Value of Insurance

One of the biggest benefits of insurance, Ms. Hebard said, is it allows average people to own property. While most rely on mortgages when they purchase a home, they also need a safety net—which in this case is insurance—to reassure them that their investment is protected.

If companies stop issuing various types of insurance, she said, it could impact the economy because people won’t buy properties and contractors, who also rely on insurance, won’t be able to build. Even those in the freight industry won’t be able to ship products without coverage.

“This is something that can crash our economy. If the insurance companies say, ‘No more, we’re not going to write any insurance in California anymore.’ It will stop everything here,” Ms. Hebard said.

However, such an “old and basic tenant to the economy” is now facing cutbacks and many customers are suffering, she said.

“It’s the very first time in the 75 years that our insurance agency has been in business, we can’t find insurance for people,” she said.

She said that though it is normal for rates to increase due to inflation and other factors, people could be looking to pay much more than needed under current regulations.

According to Ms. Hebard, if local insurers stop operating in California, people will need to find coverage from out-of-state companies—which the state’s insurance department has no control over—and they could set a much higher rate because there is no regulation.

Additionally, she said it is important for people to talk to their elected officials to make changes to the law preventing insurance companies from adapting to present-day increased risks, like wildfires, floods, and higher repair costs.

“Something’s going to have to give with this, because our economy won’t thrive unless we do something about it,” she said.